Why Customer Retention is the Lifeline of Your Business


Many SaaS businesses, whether large or small, do not seem to understand why customer retention is important. They would rather focus on acquiring new customers than keeping old ones. In the long run, they end up with overblown marketing budgets that do not bring real returns to the business.

While customer acquisition is important, it lacks the power to change the fortunes of a business the same way customer retention would. Through customer retention, a SaaS business would have a long-term supporting lifeline that assures it of sustained sales.

What Is Customer Retention?

Customer retention consists of activities by businesses to ensure customers do not defect to rival companies. It helps turn everyday patrons into loyal, consistent customers who believe in what the business offers. Customer retention makes customers come back once and again. Since loyal customers deeply appreciate the business, they talk positively about it to others. Thus, they help the business get more customers at a small or no cost.

There are many ways in which a business may seek to promote customer retention. The first is putting in place a more consistent customer experience without which they will miss out on opportunities for up-selling and cross-selling to existing clients. Many businesses, which do not understand the need for customer retention instead focus on new customer acquisition and lead generation.

Not all customers can be satisfied with a business all the time. Consequently, many businesses tend to experience increased churn due to their inability to lock in new customers. Therefore, every business must have clearly defined customer support.

Customer retention is also about leveraging customer feedback to improve the company’s products and services. By considering the views of customers, a business can create products that meet the needs of the clients. Failure to do so results in missed opportunities in the quest to promote customer satisfaction. Hence, it could make it impossible to retain customers.

The Role of Customer Retention in Business Growth

As part of the benefits of customer retention, it leads to improved prospects of business growth in more than one way. And this is not just about having more customers or improved return on investment. It also concerns other aspects of growth that might not be obvious. The following are some of how customer retention results in improved business growth:

1. Increased Revenue

Did you know that customer retention is one of the best ways to grow your business revenues? Retained customers tend to spend more money on purchasing products from your business. According to a report in Forbes Magazine, over 80% of a business’s future revenue will come from existing instead of new customers. That simply means that focusing on retaining customers is a better way of growing business revenues.

2. Increased Profitability

Businesses that retain customers for longer have improved revenues, reduced costs, and improved customer loyalty. Combining all these benefits results in increased profitability. Since profit equals revenue minus costs, it will be much higher when a business retains more customers.

3. Account Expansion

An important metric in determining the success of a SaaS business is the number of subscribed accounts it has. Thus, increasing the number of subscribers helps determine whether the business is growing. A company can cross-sell or upsell its products to the retained customers. Besides increasing the cash flow, this helps improve customer retention. The more the company’s products they use, the more they will be on its services.

4. Increased Number of Customers

Customer retention also plays a critical role in increasing the number of clients through referrals. New customers can make up their minds to sign up after hearing their friends or family members speak positively about the business. Of course, that has a compounding effect regarding increased revenue and profitability.

Additional Benefits of Customer Retention

Customer retention is important to the typical SaaS company in many ways. As opposed to customer acquisition, which is costly, customer retention is more affordable. Hence, it benefits companies, big or small, through saving costs, improved customer loyalty, better brand advocacy, and improved customer satisfaction. The following are detailed discussions of the importance of customer retention:

1. Saving on Costs

Customer retention is generally more cost-effective than customer acquisition. Businesses spend less money to retain an existing customer. According to the Harvard Business Review, it costs 5 to 25 times more to acquire than retain a customer.

On the contrary, besides being expensive, customer acquisition is not certain. Marketers spend a lot of money on advertisements to attract new customers who they aren’t even sure will stay for a long time. In the long run, focusing on attracting new customers results in increased churn, making the business lose out on the benefits of retaining customers for longer.

2. Improved Customer Loyalty

Through customer retention, it’s possible to maintain the same lot of clients for long. As they keep purchasing from the business, the customers prove how loyal they are by telling their family or friends about it. They leave positive reviews on the company’s website and other sites where they can post them. The friends they refer are also more likely to become loyal clients.

3. Better Brand Advocacy

Loyal and satisfied customers will more likely tell others about the benefits of doing business with you. They are happy to tell others about your business free of charge. This form of advocacy is more effective since it involves satisfied customers talking about your business. Plus, you can attract new customers at zero costs. All you must do is to improve customer experience and satisfaction and everything else will fall into place.

4. Improved Customer Satisfaction

Part of the efforts that go into retaining customers is providing a great customer experience. Thus, your customers are more likely to be satisfied with your products and services. Satisfied customers are more likely to be loyal, provide better feedback, and tell others about your business.

Practical Examples of Successful Customer Retention Strategies

Now that you understand the importance of customer retention, learning practical customer retention strategies should help you greatly improve your business. Every SaaS company should use the following customer retention examples:

1. Taking Steps to Improve Churn

As dreaded as churn might be, it’s still something you can deal with by implementing the right steps. First, you need to analyze the reasons why your customers are leaving. That’s because customers hardly leave without providing hints. They might have posted a complaint on social media or left a negative review. If, for example, a customer complains about unresponsive customer support, ensure you make the necessary changes.

2. Demonstrating Value to Customers

SaaS businesses often work with other organizations as their clients. Often, these customer organizations are the end-users of the products. Thus, critical stakeholders like the management need to know how efficiently they can gain value from the product. A good customer retention example is demonstrating value in terms of possible cost savings and reduction in workflow.

3. Giving Consistent Customer Experience

Customers are as different as they look. They have different needs, which you can best meet through tailored solutions. Therefore, avoid a one-size-fits-all solution. Personalization is one of the best ways to advance customer relationships. Keeping your offering relevant and personalized to your customers ensures you offer the most useful solutions for their problems. It is easier to improve customer retention through that strategy.

4. Instituting an Effective Customer Feedback Loop

Knowing how your customers feel about your business is the first step in improving it. That’s why you must put in place mechanisms for obtaining customer feedback. A customer feedback loop can help you to collect, analyze, and distribute data from customer surveys and reviews. Effective customer retention examples include running a survey, asking for feedback from customers after every interaction, and enrolling customers into focus groups.

The Right Playbooks for Effective Customer Retention

There can be different customer retention playbooks depending on the customer’s place in the onboarding journey. Thus, new users, churned users, and long-term users would all have their playbooks. The following are the playbooks you may use to boost your customer retention efforts:

1. New Customers’ Retention Playbook

For new customers, you need strategies that make the onboarding process easier and straightforward. Thus, you could use a welcome survey to collect customer data on their goals and needs. Using the data, you could segment users and improve the product to meet customer needs.

Also, use the data collected from the welcome survey to improve user activation checklists. Finally, businesses should improve customer experience by supplying the information they need to derive value from the product.

2. Long-Term Users Retention Playbook

Most SaaS companies tend to ignore long-term users, thinking they are safe. They forget the need to keep delivering consistent value to keep them as part of the business. The best customer retention examples for long-term users include monitoring customer satisfaction through in-app surveys, introducing new and better features, creating a vibrant community of users, and harnessing loyal customers to help bring in new ones.

3. Churned Customers’ Re-Engagement Retention Playbook

Some users may stop using your products at some point. But just because they left doesn’t mean they’re a lost cause. Find out reasons for the churning through a churn survey and use retargeting campaigns using the data. Examples is retargeting campaigns include win-back emails, mobile push notifications, social media messaging, and incentives such as gifts, discounts, loyalty points, and rewards.

Transforming Your Business with a Strong Customer Retention Plan

Now that you know why customer retention is important, you should formulate a plan for transforming your business. Formulate strategies to onboard new customers to reduce the churn rate. Once customers start using your services, provide top-notch services to retain them. Always take feedback from your customers and implement any recommendations they give. But don’t neglect churned customers. Find out why they left and act fast. Where possible, persuade them to return.