For SaaS companies offering services through subscriptions, customer retention significantly controls the bottom line. Customers generally pay only a fraction of their lifetime value upfront. Therefore, retaining them is crucial for driving recurring revenue. According to HubSpot, increasing customer retention rates by just 5% can boost profits by 25% to 95%. 

However, retention alone isn't enough—businesses must balance acquiring new customers and keeping existing ones to sustain growth. Effective customer retention also opens up more opportunities for revenue growth through cross-sells, upsells, upgrades, and referrals. This also drives sustainable growth for many SaaS companies.

As Forbes points out, a company cannot grow without attracting new buyers. The key is finding the right customers with a high lifetime value (LTV) that justifies their customer acquisition costs (CAC) and retention costs.

Also, great products and services are the baselines—to thrive truly, SaaS sellers must develop tailored retention strategies that keep current customers subscribing. This is especially critical given the continual nature of SaaS tools and the potential for multi-year contracts with add-on upsell opportunities. 

In this article, we will explore how, with the right approach and tools balancing acquisition and retention, SaaS companies can acquire more valuable customers while preventing churn of existing higher-value ones.

Why is SaaS Customer Retention Important?

Here’s why SaaS customer retention is important:

Faster growth and increased revenue

According to a recent ChartMogul report, companies that prioritize customer retention grow 1.5 to 3 times faster than others.  If these numbers tell us one thing alone, it’s that customer retention is the centerpiece when looking to scale your business and drive revenue growth.

Indicates a strong product-market fit

Product-market fit is a nuanced concept. Despite conducting pre-launch feasibility studies, many businesses fall into a real vs perceived demand fallacy, realizing one or both of these a little too late:

• Their product is not needed
• Customers are unwilling to pay for it.

One surefire way to confirm product-market fit early and pivot, as needed, is to look at customer retention rates over time. A steady stream of return buyers shows that you’re solving a real problem and providing adequate value to customers.

Reduced CAC

Acquiring new customers is often expensive, so retaining existing ones can enhance cash flow and reduce marketing costs. The happier your customers are, the less you'll spend on acquiring new ones. 

As a SaaS company, Zendesk's success demonstrates this, as their focus on customer satisfaction lowered acquisition costs and improved loyalty.

Increased loyalty

Satisfied customers who consistently choose your product and have positive experiences tend to become more loyal. This fosters trust, making them less likely to switch to competitors, even if offered similar features or lower prices.

Repeat customers are more likely to recommend 

Satisfied customers who regularly use your product are more likely to become loyal brand advocates and refer others. This translates to a lower CAC and higher customer lifetime value (CLTV) for your SaaS business. 

By prioritizing a consistently positive customer experience, you're not just building a loyal following; you're creating a sustainable growth engine.

How Do You Measure Customer Retention?

Your customer retention rate (CRR) shows how you retained customers over a specific period. 

Calculate customer retention by first subtracting the number of new customers you acquired within a period from the total number of customers you have at the end of the period. Next, divide that figure by your number of customers at the start of the period and multiply your answer by 100.

Here’s the simple formula for calculating your SaaS retention rate over a specific period:

Customer retention rate (CRR) = [(No of customers at the end of the period - No of new customers acquired during the period))/No of customers at the start of the period] x 100

SaaS Customer Retention Metrics and Benchmarks

SaaS customer retention metrics are KPIs that measure how effectively a company retains customers over time, providing insights into customer loyalty, satisfaction, and overall business health.

Here are some key B2C and B2B SaaS retention benchmarks to note as you grow your business:

• Customer Retention Rate: Some experts say best-in-class SaaS businesses have customer retention rates between 85% and 87%. Meanwhile, UserPilot asserts that a good SaaS retention rate to aim for is 90%. Either way, this number can fluctuate over time due to factors like product updates, economic instability, average uptime percentage, and more.
• Customer Retention Rate by ACV: According to 2023 SaaS Capital benchmarks, products with higher annual contract values (ACV) record higher net and gross retention rates (GRR). Companies with ACVs over $250,000 had a median NRR of 110% and a GRR of 95%, while those under $12,000 had a median NRR of 100% and a more variable GRR.

• ARR Per FTE Benchmark: Founder and angel investor Bartek Pucek suggests that at scale, companies should target a high revenue per employee, aiming for $200k+ in ARR per FTE. This range indicates efficient use of human resources relative to revenue generation, suggesting operational effectiveness. 

Understanding and tracking key metrics

Consider tracking these additional SaaS customer retention metrics for deeper insights:

Customer churn rate

Customer churn rate is the percentage of customers who stop using your product or service during a specific period, the opposite of customer retention rate.

Churn Rate = (No of customers lost during a period/No of customers at start of period) x 100

Customer lifetime value (LTV)

Customer lifetime value estimates the total revenue your company can expect from a single customer throughout their relationship with you, reflecting the long-term impact of your acquisition and retention efforts.

Customer LTV = Average purchase value x Average purchase frequency x Customer lifespan

Repeat purchase rate

Repeat purchase rate shows the percentage of your customers who make more than one purchase from you over a specified period. It is a key customer loyalty indicator.

Repeat purchase rate = (No of repeat customers/Total no of customers) x 100

Net promoter score (NPS)

Net promoter score (NPS) measures customer loyalty and satisfaction by asking how likely they are to recommend your product or service on a scale of 0 to 10. 

It categorizes customers into promoters, detractors, and passives, then calculates the score by subtracting the percentage of detractors from promoters.

Net Promoter Score = % Promoters - % Detractors

Where: 

• Promoters are respondents who rate your company 9 - 10
• Passives are respondents who score 7 - 8.
• Detractors are respondents who rate your company 0 - 6 

Customer satisfaction score (CSAT)

Customer satisfaction score measures customers’ satisfaction with your company by asking them to rate their experience on a predefined scale, typically from 1 to 5 or 1 to 10. This helps you assess customers' immediate sentiment about your business and identify areas for improvement.

Customer Satisfaction Score = (No of satisfied customers/No of survey responses) x 100

Where:

• Satisfied customers are respondents who rate their experience with your brand positively (usually 4 or 5 on a 5-point scale or between 8 and 10 on a 10-point scale).

Active users

Active users are the number of unique users engaging with your product or service over a specific period. They indicate product stickiness, user-friendliness, and utility. 

Calculate active users daily, weekly, or monthly to gain insights into engagement patterns and the impact of marketing campaigns, new features, or other changes.

• Daily active users (DAU) refers to the number of unique users who engage with your product or service in a single day.
• Weekly active users (WAU) refers to the number of unique users who engage with your product or service within one week.
• Monthly active users (MAU) refers to the number of unique users who engage with your product or service over the span of a month.

For deeper insights, segment users by demographics or behavior and analyze activity patterns. 

However, first, define what “active users” or “user activity” means for your business. This could include specific user actions like logging in, engaging with content, making purchases, or other key activities. Analytics tools like Google Analytics or Amplitude can then be used to monitor and optimize user activity.

SaaS Customer Retention Strategies in 2024 with Examples

SaaS retention strategies, shaped by personalization and the right CX software, can significantly boost customer satisfaction and loyalty. Different CX providers offer varying features that support customer retention, from live chat functionality to chatbots, in-depth reporting dashboards, and more. 

We will also explore how the Service module of Plivo CX, as an all-in-one omnichannel customer service platform, can help amplify the impact of your customer retention strategies. 

To help you get started, here are five proven strategies to retain SaaS customers, reduce churn, and drive growth:

1. Create personalized onboarding experiences

Personalizing onboarding experiences for customer segments is more effective than generic onboarding. It improves customer stickiness and retention by tailoring the process to their needs. 

Utilize data gathered during sign-up, purchase, or account creation to personalize the experience.

Example

Take Notion’s onboarding flow, for instance. After signing up, the app asks you how you’d like to use it to tailor your user experience accordingly.

Next, Notion asks you to share some more details about yourself so it can show you the most relevant content and features.

The app will then prompt you to name your workspace and add an icon, like using your company name or branding, so any added collaborators can easily recognize the invite.

SaaS buying software Vendr reports that Notion’s customer retention rate is 65.83% so they’re definitely doing something right. This rate indicates long-term usability and strong user satisfaction, especially in the SaaS industry where apps with 35% retention are considered elite.

2.Offer omnichannel customer support

Excellent customer support on the channel customers prefer can significantly drive customer retention. In fact, one of the top four brand loyalty drivers worldwide is top-notch customer service.

Focus on providing a true omnichannel support experience so your service agents can promptly address customer issues or requests. 

Example

With Plivo CX's Unified Agent Desktop, agents can seamlessly switch between AI-powered live chat, voice, SMS, email, and WhatsApp. As for customers, here’s how they benefit: 

1. Faster resolution times: They experience quicker responses and resolutions to their inquiries. Since agents have immediate access to all necessary information and tools in one interface, they can address customer needs more efficiently.
   
   
2. The same quality of service on any channel: Customers enjoy a seamless experience as they move across different communication modes without having to repeat their issues or re-provide information.
3. Personalized interactions: As agents can tailor their interactions based on past engagements and known preferences, customers feel more valued and understood. This promotes their overall satisfaction and loyalty to the brand.
4. Reduced errors and miscommunications: The aggregation of communication channels and customer data in one place eliminates scopes of miscommunications and errors in handling high volume customer requests. This leads to more accurate support and a better customer experience.

3. Monitor product usage

Track product usage to identify engagement patterns and potential churn risks. At-risk customers often show signs like decreased usage or unresolved support tickets. 

Also, analyzing customer data by user segments helps you promptly identify and address churn potential.

Example

Before adopting Hotjar, the social media planning and approval brand HeyOrca needed a clearer way to measure user engagement and satisfaction. 

With the website and app analytics tools, HeyOrca has been able to assess its user experience, monitor how users interact with their app, and adjust site elements as needed.

4. Use customer journey maps

Customer journey maps help you understand the different stages users interact with your product and identify pain points or opportunities to enhance their experiences.

For example, analyzing your customer journey maps may uncover delayed verification email delivery during the signup process, which frustrates new users and leads them to churn. 

With this information, you can then troubleshoot the issue and ease the account creation process, subsequently driving up retention.

5. Make self-service more accessible

Research from 2018 showed that 88% of customers expect companies to have online self-service support portals. 

Want to keep us with modern customer requirements? Leverage live chat technology, chatbots, interactive voice response (IVR), and comprehensive help centers to help customers self-serve even when agents are unavailable or otherwise occupied.

Example

Plivo CX partners with OpenAI, keeping your customer support at the forefront of innovation. The OpenAI-driven self-service chatbot helps you offer 24/7 support to your customers. You can also train the chatbot to use only your selected content, ensuring accuracy and relevance. 

Easily build custom knowledge bases to empower both bots and human agents. When issues require human intervention, easily escalate them to your agents for faster resolution. 

With a customizable IVR, you can automate your first customer touchpoint. Guide callers through self-selected options for faster routing, shorter wait times, and quicker issue resolution. You can also further personalize the experience by incorporating customer data into greetings and voice prompts.

Boost SaaS Customer Retention with Plivo CX

Plivo CX’s intuitive customer service features can help you boost customer retention and drive revenue. From self-service tools to SMS support, the web-based platform lets you deliver exceptional service across various touchpoints.

Book a demo to get started with Plivo CX and watch it transform your SaaS customer retention rates for the better!