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3 Strategies for Improving SaaS Customer Retention Rates

Posted by Darrin Fleming on Apr 5, 2016 9:00:00 AM
Darrin Fleming


As customer acquisition costs continue to rise, many forward-looking SaaS providers are focusing on customer retention to reduce their churn rates. In a SaaS environment, the initial purchase is just the beginning of your relationship with a new customer. You must keep earning customer loyalty to ensure high renewal rates and avoid the financial and reputational damage of churn.

SaaS agreements are a continuous sales process. Despite some differences in selling strategies, the bottom line motivators for both sales and renewals are value and cost. Keeping these aligned with customer expectations requires diligence and ongoing attention that results in higher customer retention rates and overall satisfaction. 

The Value Selling Cycle 

An essential part of selling a SaaS software solution is demonstrating how it helps customers achieve business goals. Quantifying this value is influential at the point of sale as well as throughout the renewal cycle. Value is also a powerful component in managing the customer relationship for success.

Typically, software usage increases over time with more subscribers using more seats, and customers investing more in your solution. At renewal time, however, the cost to continue at this level is likely higher than the initial sale. The customer may find it hard to justify the renewal cost if you cannot offer compelling evidence of your software’s continued relevance and value.

In reality, SaaS subscription renewals are yet another opportunity to promote the ongoing value of your software. Measurable ROI must be combined with a positive customer service experience and regular software updates that align with customer needs. By strengthening your role as a valued business partner and solution provider, you become an indispensable part of your customers’ success.

Loyalty + Value = SaaS Customer Retention 

Loyalty and value are qualities that apply to both SaaS providers and their customers. Each is required to invest in the other for mutual benefit and to sustain the relationship in good faith. Here are three strategies for retaining existing customers, nurturing their success and reducing your churn rate.

1. Cultivate and Measure Customer Engagement

Measuring engagement levels is a reliable way to identify customers at risk of cancelling or not renewing their service agreement. For our purposes, engagement is when a customer actively uses and gains value from your software. A marginally active customer isn’t likely to keep paying for your services, so engagement is essential to minimizing churn and strengthening customer retention.

The first step toward proactively cultivating engagement is to understand the characteristics of a successful customer. Tracking this information in a CRM system or specialized application will provide insights for taking action well before an account is lost. Often, all it takes is a simple phone call to get the customer’s attention and refocus it on your product. 

The next step is to take the appropriate actions that strengthen your relationship based on the engagement factors that most influence churn. Consider tracking how frequently customers log in to determine whether your solution is still vital to their business operations. If they’re only using certain functions or modules, they are not realizing the full benefits and value of your solution. 

It’s also helpful to review recent support cases to identify unresolved issues or points of dissatisfaction. Customers in need of attention are on a path to cancellation. Increasing engagement is a sure way to retain current customers and boost SaaS renewal rates.

2. Focus on Customer Success

There’s a powerful difference between providing routine customer service and focusing on your customer’s success, and that difference can have a powerful and positive effect on SaaS renewal rates. It’s important that you become a valued business partner invested in your customers’ success. This alone can be a strong incentive for continuing the relationship. 

There are many ways to show your commitment to helping customers achieve their goals. Communicate frequently about how customers can benefit from enhanced functionality, upcoming releases and new technologies. Be upfront about system maintenance and technical events that might impact customer operations.

Be generous with your expertise! Offer insights and helpful strategies for getting the most value from your software services. Provide guidance on optimizing results by using select features to their fullest. And share customer success stories to spark ideas for solving core business issues with your SaaS solution. 

3. Quantify Your Solution’s Value 

Instrumental at the initial sale, ROI and value selling tools are equally important at renewal time. They remind customers why they chose your solution in the first place, and clarify what’s at stake if they end their relationship with you. 

Quantifying value on a regular basis is a great way to reinforce the continued benefit of using your software. To maintain the highest renewal rates possible, calculate value using the most meaningful metrics available, and make needed adjustments to your products and customer management strategies. This shared investment of time and resources emphasizes your role as a trusted business partner and makes it difficult for customers to walk away from such a committed relationship.

Consider using value realization calculators well before renewal to demonstrate the ROI achieved to date. By building trust through transparency, these tools can clearly demonstrate that customers are getting their money’s worth. The result? Improved SaaS customer retention rates, lower churn, and stronger, more predictable SaaS renewals.

If your SaaS solution is living up to its promise and helping customers achieve their goals, the decision to renew should be a no-brainer. Cultivating customer engagement and managing customer relationships for success are fundamental to providing long term value.

Using ROI and value realization calculators will enable you to quantify the savings and efficiencies of your solution, and help justify the cost of renewing a subscription. These combined strategies will improve SaaS customer retention rates and help you realize the financial advantages of providing software services using a SaaS delivery model.

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Topics: B2B Selling, Value Selling