SaaS retention is the most important part of customer acquisition.
Retention is getting new jobs from the same customers. It’s like getting new customers but with people we already know.
Acquiring a new customer in SaaS always entails a cost: business meetings, phone calls, fine-tuning, password transfer, user creation, misunderstandings, explanations, presentations, and so on.
You can forget all this with a new client: we already know who we have to talk to, we already know how they like things, they already know our prices and they already know that we sell.
SaaS retention: new customers vs retention
That’s why retention in SaaS is so important: it allows us to amortize more the time and money invested in your acquisition, we speed up your purchases and also save us problems.
This example of Reforge is fantastic:
A company, let’s call it One, gets one million new users a month. It retains 85%.
Another company, let’s call it Two, gets double, two million. It retains 65%.
At first it seems clear: Two gets twice as many customers and has 20% less retention, so you’ll have more customers. But that 20% builds up. In just 3 years, Uno will have one million more customers.
Now, you have to choose well how you measure retention.
In SaaS, measuring retention is complex. Imagine that you have 20 clients and they all renew their services. Retention seems to be 100%. But if you go into their accounts and see that half of them don’t use your product, how long will they keep paying for it? One more year? And you’re going to keep collecting it? Netflix, in a remarkable customer service movement, if you subscribe but don’t use it in a whole month, stops charging you and sends you an e-mail reminding you that they are there for you when you have time.
It’s better to measure usage. And without cheating, because that’s just fooling yourself: if you count the annual users, they are going to be many, but you need to know how many users visit you day by day. Measuring retention in SaaS helps you to know it, not to make milkmaid stories.
And once you know how much % is your SaaS retention?
Here comes the hard part: it’s hard to choose the action that leads to more retention. It’s important to cover real problems and not hide things under the carpet. If you devote yourself to fooling yourself or optimizing the metric that is not the one that brings retention, when you want to realize it will be too late.
What you need is for people to use your product. If they use your product they will stay. And the more they use it, the more money will come to you.
Not only that: the way to get retention in SaaS is to get them to use your product.
The more they use it the more they will learn to use it, which creates a virtuous circle: the more they learn to use it the more they will use it, so they will learn to use it even more, they will use it more, they will learn to use it even more… etc.
Also, the more they use it, the more essential it will be in their daily life. And it’s going to be more difficult to change the habit.
Therefore, retention in SaaS is even more important than acquiring new customers. And the best way to retain customers is for them to use your product. Make your product useful and make it retain customers.
If you want to know more about SaaS, read our blog entries about SaaS.