It’s a universal (albeit crudely put, we’ll admit) truth of capitalism: businesses want more customers. While going after new customers is critical for expansion, you certainly don’t want your existing customer base to go AWOL.

In this article, we’re going to look at why customer retention matters and consider the difference between retention and engagement. In addition to this, we’re going to provide you with these five actionable strategies to keep your customers aboard:

Let’s dive in, shall we?

Why does customer retention matter?

Implementing a customer-first approach isn’t a new concept. And while it may be stating the obvious, looking after your existing customers is one of the golden rules in the business handbook.

But with the birth of SaaS, we’re noticing more and more companies using metrics to measure the status of their customer base, with most SaaS companies considering customer retention rate and rate of customer churn as critical priorities. If more businesses are using these metrics, they’re in turn genuinely asking, “How’re our customers doing?”.

The fact is, it’s far cheaper to retain your current customers than it is to go after new ones. Increasing retention by just 5% could drive your profits from 25% to 95% – we thought that stat would catch your eye!

Not only do you profit financially by retaining customers, but driving retention goes a long way in building meaningful customer relationships that pay off in ways that benefit your brand, reputation, and bottom line.

In our seminal report, The State of Customer Success 2021, we asked our customer success enthusiasts what KPIs their own teams are measured on.

It turns out that only 62.8% of participants use retention rate as one of their own KPIs. Since customer retention is the lifeblood of customer success, we imagined that the CSMs or VPs of CS would be held accountable for these pressing statistics. While this figure is by no means alarming, we expected more businesses to be using this critical metric as a KPI.

While by no means a troubling figure, we were concerned that more than one-third of our survey respondents didn’t use retention rate as a KPI, so we put these unearthed findings to our interviewees, asking if they found this irregular:

Maranda Dziekowski, Chief Customer Officer at Swiftly:

"No. Most now are using Net Retention Rate which is more telling about the overall health of a portfolio and includes churn as part of the calculation."

Chad Horenfeldt, Director of Customer Success at Kustomer:

"It's not a surprise as CS is defined in so many ways. This includes KPIs. There is churn rate, renewal rate, net churn, net dollar retention rate. This is probably the reason for that data point being so low."

Rebecca Fenlon, Head of Customer Success at Cognassist:

"I think most companies view churn and retention as opposites, and that retention is just the more positive way of reporting it. However, the opposite of losing customers isn’t retaining customers, it’s gaining customers, which is ultimately the realm of sales.
"Retention is a more proactive measure; you are constantly working towards it. Whereas churn is reactive and focused just on the point of renewal. It’s for both of these reasons that retention is our ‘one metric that matters more so than churn."

Preventing churn can often be a reactive instinct for organizations, something that is often acted upon at the 11th hour – or at the point of renewal, as Rebecca puts it. Retention is something that ought to be at the forefront of every employee’s mind, not just the CS team.

What is the difference between customer retention and customer engagement?

In all honesty, it’s easy to conflate these two core metrics of customer success – one does lead to the other – but they’re a far cry from synonymity. Making sure your product is actually being used is critical for companies, and specifically to CSMs – it’s their role to ensure the customer is engaged with your product and organization.

A customer who is satisfied and engaged with your product and/or service is less likely to churn, and it’s important to recognize the tell-tale signs of engagement to pre-empt churn via metrics.

According to Gallup, fully engaged customers offer 23% more revenue on average. But how do you track engagement? In Future of SaaS' report, The State of Customer Retention, SaaS practitioners were asked what kind of data they track to measure engagement and the results were as follows:

Types of customer engagement data tracked by SaaS practitioners
Source: The State of Customer Retention

To keep your customers engaged, it’s important to know at which point your churned customers disengaged, so you can rectify where you went wrong and anticipate any outside factors that may affect retention.

Often the reasons customers leave can be attributed to very manageable issues – poor customer experience with the organization, or increased prices can cause dissatisfied customers.

And in the case of a start-up company, your first customers might not necessarily be the right fit for your business, and this is something that you finesse later down the road. Customers can churn because they were early adopters of your product and not the ideal customer profile for your product-market fit.

Depending on your line of work, the customers who fall to churn may use your product on a seasonal basis; they might only need us for a defined period of time, but might re-buy at a later date when your product is needed once again.

SaaS churn rate guide | Future of SaaS
Customer retention is essential in the world of SaaS. While it’s inevitable some customers will call it a day and unsubscribe, you still want to keep your churn rate super low.It’s a matter of saving revenue. If your churn is high, then it’s bad news.

NB: It’s important not to conflate engagement with product usage. People actively using a product can still churn if they aren’t properly engaged with your service, or if they’re unaware of further perks and uses of your product.

Once you’ve established the key differences between customer engagement, usage, and retention, you can start implementing actionable strategies to drive customer retention within your organization.

So, without further ado, here they are... 🥁

1. Structure your team towards retention

You know that famous, age-old phrase: ‘customer retention starts at home’. You don’t? Well, here it is folks; in order to drive customer retention, you need to implement the appropriate infrastructure within your organization, and that starts with a dedicated customer retention team.

By structuring your team towards retention, you instantly put yourself ahead of the curve and put your team in a stronger position to keep customers subscribed.

To circle back to our earlier point, retention is the bread and butter of customer success, in the same way that CS works within SaaS – it’s like PB+J. Customer success is a function still sculpting out its identity, but it’s predominantly found in SaaS companies, with 54% of CS professionals working in the IT sector and 10% hailing within the remit of E-learning.

So the question is: how can the customer success departments within the SaaS industry proactively develop a customer retention strategy? By creating a customer retention team.

In The State of Customer Retention report, produced by The Future of SaaS, they found that only 58% of companies have a dedicated customer retention team. Now, for SaaS practitioners, that’s worryingly low.

A total of 31% of respondents said their customer retention team was small but mighty, with just 1-5 members. The remainder of the results were an assortment of answers with 8% of people reporting a team between 21-30 people and 7% reporting a team of 6-10 people.

Size of customer retention team
Source: The State of Customer Retention

When asked how retention teams are structured, the interviewees in the Future of SaaS’ report gave a myriad of responses:

Patrick Kelly, Senior Director of Customer Care Enablement & Operations at Brainshark:

“Account managers handle the commercial aspects of relationships and CSM handle the day-to-day - they partner on a business review activity.”

Carolyn Breit, Director of Customer Success at Rightsline, Inc.:

“It's just me for now. I’m part of the overall Customer Team and I work closely with clients post-implementation, along with the Support team.”

Sophie Delahunty-Allsop, Customer Success Consultant at Zoopla:

“We have dedicated members for each geographical region.”

Kyle Bennett, Director of Customer Success, Corporate & SMB at IntelliShift:

“Customer Success Managers are responsible for owning the retention elements by orchestrating the broader business teams in support of customer goals. To this extent, we have dedicated CSMs for each customer across four segments with portfolios ranging in size.”

William Kahn, VP of Customer Success, Americas at Centrical:

“It’s inherently part of the Customer Success organization OKRs - everyone in CS is responsible for Customer Success and retention. We have 3 primary organizations:
1. Client-facing customer success teams (CSM/TAMs)
2. Customer support (tickets and implementation support)
3. Solutions (internal and external facing best practices, Product training, and platform evolution to improve customer success)”

Dries Lamont, Chief Growth Officer at EGSSIS:

“Our ‘operational/technical account managers' and commercial account managers have a shared responsibility to keep our customers happy and to solve their issues.”

John Branning, Regional Sales Director, Bits In Glass US, Inc.:

“The VP leads our account management team, directors have individual account plan responsibility, reviewed bi-weekly with account executives and the delivery team.”

Ildefonso Moyano, Senior Director Global Customer Success at Mews:

“Customer success looks after product adoption, preventing churn, and taking care of new expansion opportunities.”

Nathalie Rierson, Customer Success Manager at Magnitude Software, Inc:

“Each Customer Success Manager has around 30 customers to support. The more senior CSMs support the largest customers in revenue. The team will be growing in 2021.”

2. Implement a watertight onboarding process

It’s all well and good to celebrate your recent spell of customers, you might pat yourself on the back for securing this new revenue stream. But the celebrations won’t last for much longer if you don’t have an orchestrated onboarding process in place.

According to a study by MicKinsey, lack of onboarding support, poor engagement, and generally subpar customer service are cited as the main reasons customers churn. In fact, they claim that these failings provide 52% of the reasons why customers leave within the first 90 days.

Poor onboarding is the main cause of churn
Source: KickStart Alliance

In order for the customer to gain value from your product, they need to be carefully monitored within this tentative period. The way to do that is by providing them with a comprehensive, bespoke onboarding experience that familiarizes them with your company and establishes what they will achieve with your product.

In the State of Customer Retention report, the surveyed SaaS practitioners were asked about their customer retention tactics. An overwhelming 84% of participants revealed that customer onboarding programs were the most effective measures of ensuring custom retention.

Getting customers off to the right start with a watertight onboarding program is second-to-none, as evoked by Christopher Brown, Director of Customer Success at Fulcrum:

“Take some serious time looking at your onboarding experience. I've seen it time and time again,  the customers that end up leaving, never really got started in the first place...they stalled early on. Front-load your customer experience so customers remain more engaged, everything after the point of sales is a momentum game, how long can you sustain that momentum?
"Front-loading will pay dividends for your customer (more value, sooner), and therefore your company (retention, ease of maintaining accounts).”  

This sentiment is reiterated by Future of SaaS interviewee, Vic Kasoff, Director of Customer Experience at Healthcare Bluebook (Quantros), who urges CS teams to “build out a customer success plan for each client.”

Patrick Kelly, Senior Director of Customer Care Enablement & Operations at Brainshark advocates CSMs to “support the customer by making sure they have identified their business goal for using the platform.” After this point, he advises the CSM to then guide the customer and “hold them accountable for using the platform correctly to meet their business goal.”

3. Customer loyalty programs

Everyone – and we mean everyone – likes to benefit from a bargain, or receive free things, and if they say they don’t they’re probably lying!  

Providing your existing customers with incentives to stay with your organization can be an effective way to keep them on board. By rewarding your clients for their custom, you are proactively looking to build a long-lasting, healthy relationship and increase customer lifetime value (CLTV).

Why you need a customer loyalty program
Source: Why Loyalty Programs are More Important Than Ever (Medium)

Customer loyalty programs can have a powerful psychological impact on customers. Not only do these programs make the company appear generous, but they inspire value within that customer, which increases the likelihood they will commit to repeating purchases. Generally, consumers will continue purchasing if they believe they’re saving money with that company.

Customers who have a positive experience with a company are more likely to generate referrals by word of mouth, which with 84% of people trusting recommendations from friends, mean it’s marketing gold dust!

Surprisingly, only 26% of SaaS practitioners implement customer loyalty programs as a retention tactic. They’re really missing a trick there!

4. Continuous customer feedback loops

Listening and responding to customer feedback is a critical component in the day of any CSM. Without it, you’re lost.

Engaging with the customer and finding out what’s working with the product (and what isn’t) is how you can ensure they’re deriving value. If they’re not, your mission is to understand why they’re not before it’s too late.

By implementing a continuous feedback loop, you’re constantly looking for ways of improvement. Customers want to gauge the type of customer service your company offers, how you deal with their feedback and whether you implement it. Failure to provide feedback to your customers will not only frustrate them but could induce passivity and diminish the relationship due to inadequate service.

According to the study undertaken by Future of SaaS, 51% of SaaS practitioners credit continuous feedback loops as a strategy used to reduce their churn rate.

5. Simplify customer interactions

The final strategy is dead easy. When it comes to top-notch customer service, customers want to be able to communicate with your company in the simplest way.

If the customer struggles to reach you to convey their feedback, they’re going to be frustrated. Period. The customer shouldn’t feel like they’re going out of their way to engage with your business. The channels for communication should be seamless, efficient, and quick.

Even if the customer’s feedback is intended to be positive and not a complaint, anyone can feel overwhelmed when faced with a mountain of (seemingly) irrelevant options. Whether you’re covering all bases as a CSM and trying to provide the maximum number of options to the customer, quality always outweighs quantity.

To drive customer retention, businesses should design convenient, straightforward channels that will provide more intuitive solutions for customers.

To wrap up

Although these five strategies are imperative for driving retention, there isn’t a black-and-white, universal formula for keeping customers happy.

But to quote Future of SaaS: “retaining customers only works if you’re maintaining good relationships, and actioning pain points accordingly.” What we can guarantee is by following the five steps we’ve outlined in this article, you’ll dramatically improve your relationships with customers, which is half the battle when trying to generate retention and prevent churn.