Remember the old video game SkiFree? The idea was to ski down the hill as far as possible, avoiding all the trees and rocks and hitting all the jumps. But, inevitably, you’d end up being caught by the ravenous, unrelenting yeti.
Players would spend hours trying to outrun that yeti, and most attempts ended in failure. But every so often, you’d discover a strategy that got you just a little bit farther. And by putting those strategies together over time, you’d eventually end up farther and farther down the mountain.
Now, I haven’t played SkiFree in decades. But after working with hundreds of SaaS companies, I've realized that the same advice applies for your retention rate as well.
Yes, churn is inevitable—every customer will abandon your product eventually. But just like avoiding the yeti is way more fun than restarting the game, boosting your retention is more fun—and way more valuable—than acquiring more customers. Twice as valuable, to be precise.
Keeping your customers as long as possible is the key to running a sustainable subscription business. And, just like that yeti, churn is public enemy number one. So let’s look at some concrete customer-retention strategies you can use to give your bottom line the boost it needs and keep your SaaS sustainable for the long haul.
Align team incentives around retention
Almost every department within every SaaS company I’ve come across measures success differently.
Sales teams like to track dollars in the bank each month. Marketers, they’re measuring qualified leads, which don't always pan out. Meanwhile, product teams are busy tracking how many features they've delivered and story points they've completed.
It’s a mess—not just because every team has different incentives, but also because none of these metrics focuses on retaining customers. “It behooves companies,” explains Tim Thyne, head of customer development at Help Scout, “to shift the focus from what employees do (‘I market,’ ‘I sell,’ ‘I support’) to what benefits they provide to the customer, which starts by tracking people’s performance differently.”
David Cancel, founder and CEO of Drift, shared a simple solution in his talk at SaaSFest 2015: design your internal metrics for every department to incentivize customer retention. This one change, he argued, could help SaaS companies dramatically improve their retention rates.
What does that look like in practice?
- For sales teams: Limit by geographical area or industry vertical the number of prospects each salesperson is responsible for, and modify commission structures so sales teams receive some percentage only after customers stick around. This keeps sales staff from running through leads too quickly.
- For marketing teams: Focus on lead quality over volume. Instead of tracking the number of marketing qualified leads (MQLs), try tracking the number of sales qualified leads (SQLs) as a success metric. Also, integrate more closely with sales by embedding business development reps on the marketing team to better qualify leads.
- For product teams: Make sure product managers have direct and open access to speak with customers. Without direct feedback, product improvements will be haphazard and, ultimately, won’t help retain customers.
Make onboarding your top priority
An effective onboarding process can make or break a customer’s decision to stick with your product. If your software isn’t intuitive and customers can't find value in it, they will quickly flee.
- Week 1 retention: Can you get your users to use your product more than once?
- Mid-term retention (weeks 2-4): Can you establish any pattern of usage?
- Long-term retention (weeks 4+): How does your product become an indispensable tool?
Most companies put more effort into improving long-term retention—but it turns out that improving early retention through better onboarding cascades into the rest of your customer life cycle, creating ongoing retention gains.
Dan’s efforts to improve the onboarding experience at HubSpot’s now-defunct Sidekick product drove up first-week retention nearly 15%. What’s more interesting, though, is that those effects continued indefinitely. At week 12, those initial improvements had boosted retention from roughly 15% to over 25%—an improvement of over 60%.
So how can you improve your onboarding and see similar results in your own SaaS? Margaret Kelsey over at Appcues lists some best practices:
- Know your customers. Understand the job customers are “hiring your product” for, and frame your onboarding around achieving that success.
- Identify your aha moment, and get users there fast.
- Map out and benchmark the user journey. Design a path to guide them through key features that help them achieve their goal.
- Continue educating users even after onboarding. Provide tips, training, and education so customers get the most out of the product.
Engage with customers to help them succeed
According to Lincoln Murphy of Sixteen Ventures, most SaaS companies overthink customer success, even though the definition is fairly straightforward:
"Customer Success is when your customers achieve their Desired Outcome through their interactions with your company."
The key emphasis here is interactions with your company, as Murphy explains:
"Rather than saying 'with your product,' the focus is on all of the interactions your customer has with your company; starting at the earliest touch points of marketing and sales, moving through closing and onboarding, and continuing through their entire lifecycle with you."
Ongoing feedback and engagement with customers are key to combating customer churn—and with the sheer number of engagement and interaction tools on the market today, it’s easy to get started.
First, make sure you’re communicating with customers across multiple channels. In-app notifications target customers when they're actually receiving value and don't require switching programs, catching them in the right place at the right time. Phone calls are especially important for retaining large-ACV, enterprise-level customers. And SMS messages can be used very close to a customers' contract expiration date to drive immediate attention.
Next, work to give customers a personalized experience. Companies who go the extra mile by offering a remarkable experience reap the benefits—according to customer experience adviser Esteban Kolsky, 72% of customers will share a positive experience with six or more people. Take email service provider ConvertKit, for example. By sending personalized welcome videos to each new subscriber (over 50 videos each day), the company was able to reduce their churn rate nearly 15% in only a month.
Finally, invite your customers to provide feedback. Customer success managers and support team members have a direct line into how their customers are using the product and what’s keeping them from reaching their goals, making them the ideal channels for collecting and managing product feedback. This feedback can help you gain a better understanding of your users’ needs and how you could improve your product and service to best meet those needs.
If you’re just getting started, sending out a simple net promoter score (NPS) survey is a great way to start tracking customer satisfaction, but it won’t provide a lot of useful qualitative feedback. Make sure you follow up with detractors and passives to close the feedback loop. And when you’re ready to get more advanced with your feedback collection, you can check out what we learned from sending over 5 million customer development surveys.
Deliver exceptional customer support
Customer expectations are higher than ever, and poor service costs businesses massive profits. A 2018 report from NewVoiceMedia estimated that poor customer service costs U.S. companies $75 billion in lost business.
Of course, when one customer submits a lot of tickets, it could be a sign that they’re engaging closely with your product. But if those tickets take a long time to close—or worse, many of them end up unresolved—that’s a strong sign the customer’s at a high risk of churning.
The best ways to combat churn with exceptional customer service? Be proactive. Look for patterns that might indicate customers are having trouble—recurring support tickets for the same problem, or customers having lots of tickets that remain unresolved. For every ticket, see if there’s an opportunity to proactively monitor for that kind of problem in the future, and either prevent it from happening in the first place or address it more quickly.
Building trust with customers through great support is crucial, especially when unplanned outages inevitably occur. After experiencing an outage earlier this year, Cloudflare managed the situation well, quickly publishing a blog post addressing the outage:
Their post explained in great detail what went wrong, what they’d already done to fix it, and how they were being proactive about preventing it in the future, no doubt helping to retain many customers who might otherwise have churned.
Stellar support brings side benefits for your business as well—besides providing more personalized support, strong customer relationships give you more opportunities you’ll create for upsells and cross-sells. Ian Landsman gives an example of using customer support as an upsell opportunity over on HelpSpot’s blog:
"Customer B is frustrated, and a bit overwhelmed. He thought he was paying for something already, and it turns out that’s not what he bought. What B needs is on a higher cost tier — but now is not the time to have a salesy and promotional tone.
B didn’t call you wanting to pay more. In fact, he doesn’t feel what he’s paying for right now is valuable. Consider what you can offer him to make him feel heard, and make him feel accommodated.
Hi B, we’re sorry to hear about your concerns. We do offer that feature on our Premium level plan, which also includes… We understand you weren’t expecting to upgrade today. Would you like to try our premium features free for 30 days? We wouldn’t expect any commitment to that plan at this time.”
Optimize your pricing to promote retention
Optimizing your pricing to balance value with profit can have a huge effect on your company’s success, from sales and marketing to retention and profitability. Even though most companies only ever spend a handful of hours on their pricing strategy, your pricing gives you a number of levers you can pull to improve retention.
First, don’t give discounts. Offering a hefty discount on your base prices might juice your numbers up front, but the benefits are short-lived. Discounting can reduce your SaaS lifetime value by over 30%, and discounted customers have just over double the churn rate of those who pay full price.
The problem? Discounts don’t create loyalty; instead, loyalty needs to be earned through providing an excellent product and service that customers can't get anywhere else. And the best way to do that is to raise your prices.
Charging more automatically increases the perceived value of your product, boosting the chances your customers will remain loyal to your company. Raising prices also lets you allocate more resources to customer success, giving customers a better experience and further increasing the likelihood of them sticking around for the long term.
ProfitWell can help you create a value-based pricing strategy that maximizes both customer satisfaction and profit.
Know your metrics and choose the right tools
You can’t improve what you aren’t measuring. Without a clear idea of where your retention rate stands right now and how you’re progressing toward your churn reduction goals, you might end up making poor decisions that could kill your progress and stifle your growth.
Tools and metrics can’t fix your churn problem, but they can take care of a lot of heavy lifting for you:
- Tools like Delighted and Zendesk make it easy to measure customer satisfaction.
- ProfitWell takes the grunt work out of measuring revenue and retention.
- Intercom and Wootric let you keep in touch with customers and collect qualitative feedback.
- ProfitWell Retain and Customer.io give you two different approaches for eliminating involuntary churn.
While tools like these make it easy to start tracking metrics, you also need to know how to pull insights out of the raw data.
First, make sure you’re calculating both user retention and MRR retention. User churn is helpful in understanding how well your positioning, customer success, and pricing are working for your business, but MRR retention lets you know whether your company is truly sustainable.
Say you have 100 customers, and 7 of them churn within the same month—that would be a 93% user retention rate. If those customers are all on your highest plan, though, that could end up being a much higher percentage of your revenue. If you only look at the user churn rate, you might assume you’re doing great—while meanwhile, you’re leaking revenue at a prodigious rate.
It’s also helpful to break down customer retention by cohort. A cohort is simply a group of users who share the same sign-up date. Breaking down your customer base by cohort can help you understand when customers are at the highest risk of churn. Here’s an example of a cohort graph:
Rows indicate the timeline and the number of customers you acquired in each period, and the columns indicate the amount of time that’s elapsed since that cohort signed up.
Understanding when users are most likely to churn can help answer questions around what they’re struggling with. For example, if you send out a one-month educational onboarding sequence via email and notice that churn is highest after the first month, it might mean you need more product education to help combat that increase in churn.
Retention is the key to sustainable growth
Of course, none of this is to say you should ignore acquisition. Every business needs a steady stream of new customers coming in the door.
But without a solid plan to retain those customers, your subscription company is bound to end up being eaten by the churn yeti.
Invest in building a sustainable strategy for retaining the customers you have and you’ll find your efforts paying dividends for years to come.