Here Are 6 Tips in Dealing with a Low Retention Rate in SaaS

July 31, 2022

Retention rate is an extensive metric that is being used to determine how good your SaaS business is doing in terms of keeping people interested in you.

But many people forget that there are many different types of retention rates:

And there are multiple key metrics that can help you determine and improve your average retention rate:

  • Monthly - Annual Recurring Revenue (MRR/ARR)
  • Turnover Rates
  • Customer Lifetime
  • Daily - Monthly Active Users (DAU/MAU)
  • Customer Satisfaction

So that's why I'm going to talk about everything that you have to know in order to keep your customers happy and improve the efficiency of your entire product with simple practices.

Let's begin with the basics:

What Is a Good Retention Rate in SaaS?

Mixpanel took the burden and conducted a study, which showed that 35% and above can be called a good customer retention rate for SaaS businesses  and 80% is the average for employee retention.

The good news is that it's not difficult to keep your rates above 35%.

The bad news is that a lot of companies don't realize this.

In order to provide you and your company a better understanding, I collected some statistics about SaaS retention.

Let's start with the good news:

✔️  SaaS companies mostly have a Dollar Retention Rate of 100%, along with negative churn.

✔️  Customer retention is the best method to lower your customer acquisition cost (CAC) since 65% of SaaS profit comes from existing customers.

✔️  Word-of-mouth has proven to be one of the best methods to keep higher rates.

✔️  A seemingly  small boost in customer retention, such as 5%, can increase your monthly revenue by 25%-95%.

And the bad news is:

☞ Only 3% of customers will become loyal if they love the products they purchase.

☞ Companies focus on customer retention and don't even realize that revenue retention is what determines the company's worth.

In other words, if you base your retention strategy on increasing the percentage of users that are on higher pricing plans, you will see a steady increase in monthly recurring revenue regardless of your customer churn rate.

And in order to understand how to solve low retention, you should first understand what could cause it.

Let's take a look:

What Does a Low Retention Rate in SaaS Mean?

A low retention rate doesn't always mean high churn rates. Less conversion than churn or lower upgrades could be other reasons for low revenue retention.

And obviously, that's not all.

Here are some of the most common reasons ow low retention in SaaS:

1- Poor UX design

If you lose lots of customers shortly after signing up - aka if you have a low CLV - the reason is probably either about the user experience or the complexity of your product.

Either way, it comes down to your UX:

  • Not having easy access to support pages or teams,
  • Non-responsive elements,
  • Little to no interactivity within the actions,
  • Too many breadcrumbs (or layers),
  • Incoherent and inconsistent styling of your pages,
  • But most importantly, having insufficient onboarding,

These are the clearest signs that your UX needs a major makeover.

If you can't attract user/customer attention the second they see your interface, it is possible that they won't pay more than they already do for your product.

And that is if they can bear with keep using it.

✅ If you don't have the time or resources to go through a thorough makeover, for now, start with improving your onboarding process so that users get the hang of the product before they start nit-picking the UX errors.

This brings us to our next point:

2- Insufficient Onboarding

The User Onboarding process is what determines the speed and efficiency of any user journey.

No matter how easy it is to use your product, you must, must, must have an onboarding process that takes the user from the start directly to the "Aha!" moment without friction.

Depending on the complexity and functions of your product, you could adopt an onboarding strategy among those:

  • written user manual (which is considered outdated in most cases),
  • video onboarding where you explain the key features,
  • An interactive step-by-step onboarding,
  • An in-person demo, usually takes a lot of time and money.

I will briefly explain how to create a butter-smooth onboarding for your users in a few headers below.

Before that, let's keep digging into the reasons why your retention rate might be low:

3- Unresolved Stability Issues

Let me share my experience with an unstable SaaS tool that almost made me quit my job:

I was a junior content writer back then, and we were using a developing SEO tool, let's name the tool UNS for now. (It's not actually called UNS)

UNS had lots of minor bugs. Separately, those bugs weren't actual problems but having so many challenges made me hate using that tool.

I asked my manager to switch to a more stable tool, but they didn't accept it for some reason. I had to keep using it...

In time, UNS solved all the problems I was facing, and I loved the end product. It made content writing with actual SEO predictions a lot easier.

However, if it wasn't for my manager, I would have quit the tool and written a bad review.

I wouldn't wait for the bugs to be solved. I would decrease their retention rate.

The developer and product teams might not see the bigger picture as much as the users since they focus on each aspect separately. But as someone who has lots of bad experiences with newly-developing tools and overflowing bugs, I know that an unstable tool is the worst nightmare for a user.

No matter how good your UX or how great your onboarding process is, stability issues can overrule them all and lead you into a pitfall.

4- Miscalculated Product-Market Fit

If a significant portion of your client base is churning rapidly, you may be targeting the incorrect consumers.

Harsh, but true.

So how do you solve this?

  1. Collect written data from your users by asking for reviews and feedback.
  2. Collect numeric data from your users by adopting analytics tools and focus on activation rate, customer churn, bounce rate, and feature usage rates.
  3. Re-target your marketing and sales campaigns. Deeper competitor analysis and email marketing could be the cure you are looking for.

And if you have done all of those (or decided that you aren't making any mistakes), here is how to skyrocket your retention rates:

6 Tips to Get Your Retention Rates Up This Quarter

 Some of these tips will help you increase customer retention, some will help you retain more cash within your flow, and some can help both.

I have already hear the objections regarding the first tip, and I hope I can change your mind:

1- Update Your Pricing

If you have:

  • A low customer lifetime value rate,
  • Lots of signups but little decrease in customer acquisition cost,
  • Little churn but still low revenue retention rates;

You should increase your pricing. The people like your product, and many of those are ready to pay more to get better service and experience.  In fact, 41% of customers say they will pay up to 20% more for a better customer experience.

Let's say that your company has 100 customers and each pays $100 every month.

This means that your MRR is $10,000, right?

But you had to update your pricing, and increase it to $120 per month. You lost 15 customers because of this update, and now you have 85 customers.

With quick math, now your MRR is $10,200 a month.

You will lose a few customers once your prices go up, but you will continue to get new ones, and the loyal ones will keep supporting you.

This could decrease your CRR for a short while, but in the long run, it can help your NDR and CRR simultaneously.

2- Be On Guard For Trends

SaaS is built around trends. Honestly, investing in SaaS is a trend in itself.

Instagram keeps it trendy by bringing new features every time a new app goes viral, Meta loves to invest in trending apps and dominating the social media environment.

People tend to be attracted to crowded places, and trends are where the crowds gather.

If webinars are trendy, invest in webinars.

If all companies invest in books, create your own book and make it valuable.

If there is a new alternative to your solution, adopt it and make it your own.

And then:

3- Improve Your Onboarding Process

%80 of people churn without seeking help when they encounter difficulties in understanding a product.

Therefore, you must make sure that you make a good first impression.

And that happens through good onboarding.

The main point of User Onboarding is to take the user through a quick introductory journey and help them get started with your product. Giving them a starting point instead of letting them stare at an unguided interface will increase your activation rates, and help your support team remove some burden off their shoulders.

Also, creating flawless user onboarding is one of the easiest processes of building a SaaS product.

4- Separate CRR and NDR

I have mentioned time over time that Customer Retention Rate (CRR) and Net Dollar Retention (NDR) IS NOT THE SAME.

Therefore, you should focus on CRR and NDR separately for different purposes.

Focus on CRR when:

  • You need more reviews and more people to create social proof,
  • Your tool requires collective data from many people,
  • Your solution is affordable for most, and your CAC is low. 

Focus on NDR when:

  • Your tool is costly, possibly a better fit for B2B,
  • You have plenty of customers but low revenue,
  • You make plans for Exit.

If you have to improve both NDR and CRR, you should:

5- Investigate Churn Reasons

Whether or not your CRR and NDR are high, you should always know why your customers leave you because 67% of churn can actually be prevented if the problem is solved at the first engagement.

Keep a form and track why each customer stops using your product:

  • What is the most frequent churn time?
  • Which features are used the most and the least?
  • Which pricing plan has the highest churn rate within itself?
  • Have the churned customers ever asked for support?

Once you collect enough answers, you will be ready to take action before even the later customers realize they are going to churn.

6- Upsell To Current Customers

If you are trying to get NDR up rather than CRR, why not keep the existing customers within the cycle and get them excited about a new purchase?

Most importantly, acquiring a new customer can cost five times more than retaining an existing customer.

Also, upselling doesn't have to be direct all the time.

You could put up a reward system where you promise average rewards to people who make a specific purchase or spend a certain amount of money.

In fact,  66% of people actually tend to spend to gain more rewards.

And this, everyone, is how you turn your business from an average business into a high-profit investor hotspot.