B2B SaaS Customer Retention Strategies
- Customer churn is the grim reaper of Software as a Service company growth and valuation.
- It's also a perplexing topic. However, research brings clarity to the problem and shows the most effective solutions.
- B2B SaaS customer retention strategies improve short term revenues and create a multiplier impact to long term growth. Managing customer churn is a SaaS industry imperative to achieve a sustainable growth business.
The Most Effective B2B SaaS Customer Retention Strategies
The Customer Service Excellence research report surfaced the top give reasons customers leave brands. It also identified the top methods applied by the Best-in-Class leaders (the top 15 percent) to achieve the lowest customer churn rates.
The research shows that software as a service attrition rates vary significantly by company maturity. Startups and emerging growth companies incur churn rates of 8 to 12 percent annually while more established publishers experience churn rates of 4 to 9 percent.
The research also found that B2B SaaS customer retention strategies varied greatly. In fact, 21 percent of companies applied certain strategies to achieve a negative churn rate. That happens when when the publisher incurs more increased spending from existing customers than the revenue loss from lost customers.
The most cited causes of SaaS attrition are shown below.
Improving customer retention is one of the primary tenants of the Johnny Grow SaaS Revenue Growth Formula.
Having managed SaaS companies for more than two decades we know they have limited resources so trying to implement every possible retention method, or some random collection of methods is a fool's errand. Instead, we recommend a precision approach to align the specific causes of attrition to the B2B SaaS customer retention strategies that are designed to to solve those problems.
The below diagram is taken from our customer retention framework and shows the top mitigating techniques used by the Best-in-Class performance archetypes to achieve the highest customer retention rates in the industry.
Below are some extracts from the research and our methodology.
Poor customer service or support is a top factor cited by customers that left their software as a service providers. For most customers, the poor support was not their first source of frustration (that was failure to achieve expected outcomes) but it was the final blow before leaving the vendor. It was effectively the straw that broke the camels back.
Customer service is often the last chance to save the customer relationship and annuity revenue stream. Good service solves the customer's problem and feeds the problem back to the origination point for root cause analysis and resolution at the source.
Really good service solves the customer problem on the customer's preferred device and channel, operates as a profit center, offers fee-based premium services (such as concierge, SLAs or entitlements) and measures its financial impact to MRR, ARR, customer lifetime value, retention and company revenues.
58 percent of customers that left publishers cited poor or declining business outcomes. When a company's cloud solution does not deliver results for customers, turnover is inevitable. Market fit and onboarding programs are shown to aid customers in achieving business results.
For example, poor business outcomes are often due to poor market fit. When publishers acquire customers outside their target markets it's not unusual that their product effectiveness or value declines.
Selling to the wrong customers will increase cost to serve, drain company resources, damage the brand and ultimately incur churn.
The solution to lowering churn from poor customer-product fit is to identify and acquire only those customers who will benefit from your solution. Understanding your customers' needs and pains, clearly demonstrating the problems you solve, pursuing customers that align with your ideal customer profile, and properly qualifying new sales leads are steps to acquire customers that will be successful, renew their subscriptions and refer other customers to your company.
An onboarding program is another retention tool. If customers become overwhelmed, are not sure where to start, or just cannot figure out how to benefit from your solution, they either use a reduced scope or don't use it at all.
Onboarding programs deliver clear and often prescriptive steps to achieve customer objectives. These programs may be automated with welcome emails, solution tutorials, and self-service knowledgebases.
A more personal touch can be delivered with an account success team or assigned customer service staff. When done well these programs are highly effective in accelerating the customers Time to First Value (TTFV), increasing customer lifetime value (CLV) and lowering attrition.
When customers incur hard times or cease operations it's also a big hit to their SaaS providers.
Even temporary setbacks can create cash flow constraints and decisions by customers to terminate non-essential products or services.
But involuntary does not mean unavoidable. SaaS customer retention strategies to reduce involuntary turnover and preserve long-term revenues include securing longer period subscription agreements and when necessary, giving customers a pause period in place of cancellation.
Delinquent payment churn has a disproportionately high impact in the SaaS industry. The statistics show that 11% of credit cards will fail when attempting to renew monthly subscriptions and less than half are ever recovered. Further, 81% of customers will ignore generic dunning emails that request credit card updates. What's needed is a personalized multiple flight nurture campaign that begins well before the a payment method is set to expire.