If you’re doing your job correctly as a product manager, customer retention should be the first thing you think about when you start your workday and the last thing you think about when you clock out.
Hyperbole much? Not really. There’s no metric in SaaS businesses that correlates with profitability more than retention.
If your business consistently struggles with high churn rates and you’re feeling a bit lost, this article is for you.
Allow us to walk you through the best strategies on the market right now for retaining customers.
- What is Customer Retention?
- Why is Customer Retention important?
- How do you monitor Customer Retention?
- Customer Retention Strategies (with examples)
- 1. Use interactive walkthroughs, not product tours
- 2. Gamify the customer experience
- 3. Reduce product friction (most of the time)
- 4. Fill empty states
- 5. Build ludic loops
- 6. Secondary onboarding
- 7. Offer a valuable upsell
- 8. Use NPS to measure customer sentiment
- 9. Categorize Customer Support issues
- 10. Start a customer loyalty program
- 11. Use content to address issues pre-emptively
- 12. Personalize your messaging
- 13. Be consistent in your messaging and positioning
- 14. Align your team incentives around retention
- Retention strategies are used by SaaS companies to maximize repeat business and make revenue more predictable.
- It’s cheaper and easier to sell to an existing customer than to a new one.
- To calculate your retention rate, take the number of customers you have at the end of a month, subtract the number of customers acquired during that month, and divide the result by the number of customers you had at the start of the month.
- Product-based retention strategies involve creating a frictionless, interactive, gamified customer experience with multiple ludic loops. There should be no empty states for the customer to stare at, and any upsells should be valuable and appropriately onboarded.
- Support-based retention strategies include regularly measuring customer sentiment with tools like NPS, and then categorizing the feedback received so that it can be acted on.
- Businesses with consistent, personalized messaging that address customer concerns pre-emptively through a support center and blog content tend to have strong retention.
- SaaS CEOs should consider aligning performance incentives for their entire company around retention, not just those of the Customer Success department.
What is Customer Retention?
Put simply, customer retention is the art of keeping a paying customer for as long as possible.
You can think of retention as the collection of strategies a SaaS business uses to maximize the number of repeat customers, enabling you to make more money from your existing customer base.
If these strategies are successful, customers will stick around and continue to send you those coveted monthly payments.
If you really do a great job, they might just turn into brand advocates that start referring their friends to you as well.
Why is Customer Retention important?
If you speak to a typical business owner, they will be losing sleep over how to attract more new business.
Makes sense at first glance, especially in the tumultuous economic times in which we live. What business doesn’t want more new customers?
For SaaS businesses in particular, this line of thinking misses the important fact that most of the margin in SaaS comes from retaining customers over time.
Consider that building and maintaining your product is expensive and time-consuming. You’re not going to recoup all that investment with just one monthly payment per customer.
Here are some stats to make you think:
- 80% of your future revenue will come from 20% of your current customers.
- 70-95% of revenues come from upsells and renewals, compared with just 5-30% from the original sale.
- Selling to a new customer incurs costs that are 5x the cost of keeping a current customer.
Look, all businesses want to make money. But rather than losing sleep over how to find new customers, it’s smarter to instead reflect on maximizing Customer Lifetime Value (CLV).
The longer you retain your customers, the higher your CLV will be!
How do you calculate Customer Retention?
The first thing to know here is how to calculate your Customer Retention Rate. This is the percentage of customers who stick around after, say, one month.
You can calculate this by subtracting the number of new customers acquired from the number of customers you had at the end of a given month.
Then, divide the result by the number of customers you had at the start of the month.
The next question is: where do you source these three data points from so you can make this calculation?
This will vary from business to business, but you should be able to see how many new customers you’ve acquired by using a sales CRM like Hubspot or (my personal favorite) Pipedrive.
To see how many customers you have or had at a given point in time, many SaaS businesses use either Profitwell or Baremetrics.
We’d strongly recommend monitoring customer retention on a monthly basis. This is what we do at Userpilot as well.
14 Customer Retention Strategies (with examples)
Now that you know why customer retention matters and how to monitor it, let’s take a look at 14 different strategies you can use to maximize it!
The first group of strategies we will examine are all based on the product itself.
1. Use interactive walkthroughs, not product tours
How many times have you been excited to try a new product, started a free trial, and then been so turned off by the product tour that you never wanted to touch it again?
The classic problem with traditional product tours like this is that they show all users the same generic features in the same generic order each time. There’s no personalization to the user’s individual needs or use case.
In other words, it’s a top-down tour where the user has to follow along and obey passively.
Newsflash: no-one learns like this. That’s why mainstream education sucks, by the way.
Traditional product tours just destroy Day 1 retention, crippling your SaaS business before it’s even had a chance to get off the ground.
By contrast, an interactive walkthrough is more like a two-way conversation. The user is directed to the specific features that are most useful to their specific use case, based on the information the customer shares in-app.
This strategy works best when you only show the user the specific features they need to use in order to activate. If you do any more than that in your walkthrough, you risk causing churn by overwhelming the user with too much at once.
Social sharing app Kontentino created their interactive walkthrough using Userpilot. After collecting some initial data about the user in a welcome screen, they elegantly point them towards the two main features the user needs to activate: connecting their social media account (see above) and making their first post.
The result? Kontentino increased their user activation by 10% within one month of installing Userpilot. That’s a lot of users who didn’t churn in the first few days.
You can read a full case study about Kontentino’s retention strategy here.
2. Gamify the customer experience
If you spend as much time online as I do, you may have noticed that there are certain product experiences that have a tendency to just suck you in.
Online games are the perfect example of this. There’s a natural human tendency to want to play, and so the time just flies by.
Intelligent companies are aware of the human tendency towards play, and exploit it in their SaaS so that the user feels like they’re playing a game when they’re using the product.
One example of an area you can use this is in your welcome screen.
Rather than collect initial user data through a dry survey, why not have users choose from a variety of preset avatars? It will feel like the beginning of an MMO game!
Other common gamification elements include:
- Points – especially combined with leaderboards
- Funny success messages
- Setting users missions or quests
- Playful rivalry between groups of users
Back in 2009, a lot of Foursquare’s initial user retention was down to gamification. Whenever a user visited a new place on Foursquare, they received points, with the possibility of becoming the “Mayor” of a given location if they visited it for a certain length of time.
Naturally, everyone wanted to be the mayor, and so users kept using Foursquare over and over in a frenzy. And retention went through the roof.
3. Reduce product friction (most of the time)
Nobody wants to use a product that makes you fill in endless forms with loads of pointless fields. The Internet has reduced our attention span and made us lazy!
To retain more customers, consider removing as many unnecessary roadblocks from your experience flows as possible, especially your sign-up flow.
Here are some specific roadblocks you could get rid of:
- Lazy Registration: if it’s possible to wait until after a user has registered to get a piece of data that you need to personalize their experience, then do so. Don’t burden them in the sign-up flow longer than you need to.
- Third party registration: No-one likes creating a new account – we have so many already. So if you can get users to sign up for your app through a third party like Google or Facebook, you will stop a percentage of users from rage-quitting.
- Minimize sign-up fields: Self-explanatory. Would you want to fill out a form that has 65 fields?
- Use Autofill: Have phone fields autofill with dashes and date fields autofill with slashes. Any time you can save the user will translate into higher retention.
If you want an example of what a frictionless sign-up form should look like, look no further than Airtable:
Super simple, no more fields needed than necessary. And note the nice third-party registration via Google at the bottom for the laziest customers (including yours truly).
EXCEPTION: There are certain products that are so complex that they actually require more friction, not less. This is often the case when your product requires tons of integrations before it becomes useful. See this post on SaaS sign up flow for more information.
4. Fill empty states
Have you ever tried to start a portrait, a picture, or an extended piece of writing? The worst moment is when you stare at the blank piece of paper and feel this overwhelming sense of lacking inspiration.
It’s much more motivating once you have a few sketches or paragraphs. Even if your first effort is poor, it’s always easier to edit than it is to create.
You can make the same argument for SaaS businesses.
The empty dashboards that often greet users when they start using a new product or a new feature are really rather depressing. There’s nothing going on there, so the activation energy required to create something from scratch seems overwhelming.
If a user is on a platform like this, it’s sometimes easier to quit the platform completely than to start using it from scratch.
The way to solve this problem is to create templates, case studies and placeholder data, and include them in your product to show users what they could potentially do.
Marketing automation tool Autopilot used this strategy and shared it with Userpilot in a talk at our Product Drive summit.
The talk is worth watching in full if you want to pursue this particular retention strategy. But the main takeaway is this:
- Before fixing their issue with empty states, Autopilot found that 50% of trial accounts were getting to the end of their trial without setting up a single campaign.
- They were able to fix the problem by replacing the empty states with meaningful templates geared towards the individual use case of each sign-up.
- This one change not only reduced retention, but doubled their activation rate.
You can also read more about it in our blog post specifically about what to fill your empty states with.
5. Build ludic loops
This retention strategy is in a bit of a moral grey zone, so use it at your peril!
The term ludic loop was coined by NYU professor Natasha Dow Schüll to describe the process of repetitively chasing a reward that always seems just out of reach. Schüll originally observed ludic loops in the world of gambling and slot machines, but the concept is just as relevant for SaaS businesses.
The four components of a ludic loop are:
- Variable rewards
- Instant gratification
- No end in sight
In other words, if you can design a product that a customer can use when alone with their device, that instantly offers a psychological reward that varies each time, and that experience can be never-ending, you’ve created a ludic loop.
This is basically a recipe for addiction by design. World of Warcraft and slot machines all follow this same model.
If you want an example of a software product that has retained users through a ludic loop, look no further than Facebook. How many of us have spent hours using the endless scroll feature? It’s a ludic loop because:
- You can use it on your own with your device
- You never know quite what you’re going to see when you scroll (variable rewards)
- There’s a superficial feeling of pleasure when you see pictures of your friends, cat videos, or other content you’re interested in
- And the scrolling can be done ad infinitum
Promise us this: if you’re going to use this strategy, so please ensure that you’re encouraging your customers to use something that’s actually going to make their lives better! Ludic loops have a dark side.
6. Secondary onboarding
If you’re like most product managers and think that onboarding users only happens in their first few days of using your product, the term secondary onboarding might seem a little self-contradictory.
Isn’t onboarding over once the user understands their way around the product?
Well, no. Allow me to explain.
According to the Oxford Languages Dictionary, onboarding in the sense of products is defined as “familiarizing a new customer or client with one’s products or services.”
Does learning about a product ever end? No, learning is a constant journey.
For example, I’ve been using WordPress for around ten years, and I definitely don’t know everything (and would mistrust anyone who says they do know everything).
Allow yourself to think of onboarding not as a “one and done” activity, but instead as continuously leading the user further down the product adoption journey.
You should create onboarding activities at every stage of the user journey, hence the terms secondary onboarding, tertiary onboarding and even “evergreen” onboarding.
How to onboard users is a massive topic that would require a separate post to do justice to, but you should be aware that you can use the following UI elements in your product for onboarding purposes:
- Native tooltips
- Experience flows
- Support center
One company that does secondary onboarding well is Hubspot.
In this example, Hubspot uses a tooltip to encourage a user to save their email as a template. This is something that will save someone who is using Hubspot frequently a lot of time, so it’s a tip that’s aimed at an advanced user, not a beginner.
A user receiving a tip like this would be less likely to churn due to frustration with endless copying and pasting.
7. Offer a valuable upsell
We mentioned earlier that SaaS businesses make most of their money by retaining users for a long period of time. Hence the importance of all these retention strategies.
It therefore stands to reason that if you can offer upsells to make your users’ product experience more premium and more valuable, you’ll both increase retention and make more money in the process.
I recently had a conversation about the value of upsells with a good friend who works in the gaming industry.
If all you do is subscribe monthly, it’s possible to play MMO games like World of Warcraft, Star Wars: The Old Republic or Lord of the Rings Online very inexpensively. Increasingly, games like this are even offering the first few levels entirely for free.
MMO games make all of their money from upsells, to a degree that is quite staggering. My friend told me he’s seen examples of gaming companies that make 90% of their profits from the hard-core 1% of customers who are prepared to purchase every upgrade, mount and other premium items they can get their hands on.
In the gaming industry, such customers are affectionately called “whales.”
Upsells make the user experience much richer and more meaningful. Because humans tend to value things we invest time and money into, upsells are strongly correlated with higher retention as well.
The next group of strategies we will examine are all based on improving customer support.
8. Use NPS to measure customer sentiment
Net Promoter Score, or NPS for short, is a way of measuring how likely a user would be to refer you to their friends on a scale of 1-10.
- If a user gives you a 9 or a 10, you can consider them a Promoter. They like what you’re offering and are a loyal customer.
- If a user gives you a 7 or 8, they are a Passive. They’ll probably keep using your service, perhaps with a few minor complaints, but they won’t be telling their friends about you any time soon.
- Users with a score of 6 or less are Detractors. They are unlikely to renew their subscription, and the lowest-scoring users might even discourage others from buying from you as well.
If you measure NPS on a monthly basis and track changes over time (hey, we allow you to do that!), you’ll have a way to predict which customers are likely to churn and which you are likely to retain. It’s a good idea for customer support to seek dialogue with the Passives to nip any issues in the bud before they become Detractors.
The very best companies will complement the quantitative data they get from NPS surveys with qualitative follow-up surveys as well. This gives you more data at your fingertips to understand why a given user is scoring your SaaS in a particular way.
It’s possible to create both NPS surveys and qualitative follow-up surveys in-app using Userpilot. We like surveying users in-app rather than by email, because this means that they’re not distracted by opening email surveys and will spend more time in your SaaS product.
This is what an NPS survey looks like in Userpilot:
And this is what a qualitative follow-up survey looks like:
If you’d like to learn more about building in-app surveys with Userpilot, consider booking a free demo.
9. Categorize Customer Support issues
The more your SaaS grows, the more customer support data you’ll need to manage and the greater the need to keep it organized and categorized.
Having an organized customer support database will allow you to respond quickly to concerns using templates that already proved successful at solving similar issues in the past. Customers will appreciate your responsiveness, and you can expect this to translate into higher retention.
Here are the main categories by which you should sort the feedback that you get:
- Solicited or unsolicited. When you ask for feedback directly, you control the question and when it’s asked, but you only get feedback issues you asked about.
- User type: SaaS businesses will generally want to respond faster to the concerns of power users than those of regular ones. New users ask different questions than other types of users. Sometimes the most honest users to get feedback from are those who are exiting your product. All these types of users need to be treated differently.
- Issue type: The most common recurring support tickets in SaaS business generally relate to billing issues, software bugs, feature requests, and UI issues.
- Severity: Issues regarding privacy, security and billing have serious consequences if left unaddressed. By contrast, a quick thank you note probably doesn’t need to be answered immediately.
- Sentiment: This is as simple as sorting positive feedback from criticism.
Of course, once you’ve categorized the feedback, you will still need to follow up on it and take action! Otherwise the whole act of categorization will be for nothing.
If you’re looking for a tool that excels at categorizing customer feedback, we previously reviewed Qualtrics, UserReport and Canny here.
Canny gets my vote based on how neatly their in-built categorization divides into segments, boards and tags.
10. Start a customer loyalty program
This retention strategy is all about making your customers feel special and like they are part of a privileged few.
Customer loyalty programs are generally set up in one of three ways:
- Points-based: Customers earn points for actions such as purchases, referrals, subscribing to your newsletter, or following your brand on Facebook. These points can then be exchanged for perks, such as discounts. Almost every popular supermarket has mastered this strategy.
- Events-based: Customers earn rewards for special events, such as their birthday or the anniversary of when they started using your product. Reddit uses this strategy by giving users trophies to celebrate each year of them being a member.
- Fee-based: Customers pay a little extra to be part of a club with exclusive benefits. Think of something like Amazon Prime, in which customers pay to access free shipping, free movies and other exclusive deals.
Points for you if you’ve noticed that some of these loyalty program strategies have an element of gamification too (see what we did there).
The next group of strategies we’ll examine relate to content and messaging.
11. Use content to address issues pre-emptively
If you’ve worked in a customer-facing role in a SaaS business, like customer support or customer success, you’ll know that after a while you start to see the same issues cropping up multiple times.
Sure, it’s valuable to address each issue manually with the individual who raised it, but it’s even more valuable to address these issues pre-emptively, before they become a problem for users. Prevention is the best cure.
This starts with building a knowledge base so that users can fix some of their issues on their own, without requiring to talk to your support team.
Userpilot practices what we preach on this point. We maintain a massive support center that covers most of the queries we hear daily from our customers. And we’re adding to it all the time.
The Userpilot app also gives our customers the ability to build a resource center in their own SaaS product. With the resource center, you can embed your knowledge base in-app so it’s searchable by keywords and super easy for their users to find:
We also spend hundreds of hours each month creating helpful content like this article here. We ensure that we fill our articles with examples and screenshots, so as to make them as actionable as possible for our customers. And we also invest a lot of time in making sure our articles are easy to find on the Internet.
All this ensures that our customers can find guidance on many issues without coming to us directly. This builds trust and aids with retention.
12. Personalize your messaging
If you recall from earlier, the key reason why product tours suck is because they deliver a generic list of generic features to all users. The solution here is to deliver an interactive walkthrough that is personalized to the needs of the individual customer.
To extrapolate a general principle from this example: the more personalized your customer experience is, the more likely it is that they will want to stick around.
Here are some stats from research conducted by Instapage that underline this point:
- 52% of customers will choose to shop elsewhere if they receive an email that isn’t personalized.
- 79% of customers will only consider an offer if it has been personalized to reflect previous interactions they have had with the company.
- 75% of customers say that they are more likely to buy from a company that knows their first name and purchase history.
In the modern digital era, the way to really show customers that they matter is to take the time to connect with them in the real, analog world.
At Userpilot, we send each of our customers personal, hand-written Christmas cards.
It’s just a small gesture, but our customers love it. It turns our online relationship into an offline one. Both are real, but opening these physical letters adds a visceral element that the Internet cannot match.
13. Be consistent in your messaging and positioning
One of my favorite definitions of integrity is:
Do what you say and say what you’ll do.
Just as your friends and family will judge you for not holding yourself to a high standard of personal integrity, so your customers will judge your SaaS company for not being consistent with how you position yourself in the marketplace.
Why is consistent messaging important to retain customers? Consider the following:
- The paradox of choice is a psychological concept that suggests that we feel more overwhelmed when we have more choices to think about. A SaaS business that has a consistent message presents a very clear, binary choice for a customer. Either they like what you’re selling, or they don’t. If you keep your messaging consistent, those that like it will stick around.
- SaaS companies very often compete globally. You can’t expect to make an impression on such a competitive landscape if you don’t stand for something. Inconsistent brands fail to make an impression on customers because they just don’t know what the brand represents.
- You should never overpromise and underdeliver. For example, there’s nothing necessarily wrong about being an early-stage business, but it’s better to be honest about that upfront in your communication with customers.
At Userpilot, you’ll consistently hear us say things like:
- Product tours suck (especially Intercom ones – sorry folks, there are other things you’re good at!)
- Onboarding should never end
- In-app communication is often more effective than email communication
- Segmenting customers during onboarding using a welcome screen is essential
- Qualitative feedback is just as important as quantitative feedback, if not more
- Product managers should be obsessed with getting users to activate
- The most important metric for SaaS businesses is retention
We built our product with all of these truths in mind, and our customers that use it notice these things too.
What we do and what we say match. This is why our customers trust us and stick around.
One final strategy before we wrap up…
14. Align your team incentives around retention
We’ve shown in this article why retention should be considered the most important metric for SaaS businesses.
Yet so often, employee bonuses and monthly KPIs are centered around closing new business, not retaining old customers.
Customer Success is not the only department that should have a bonus related to keeping the churn rate down. Why not involve the rest of the company as well and get everyone working towards the same goal?
Here are some concrete examples for what that could look like:
- Marketing in SaaS companies is normally focused on bringing in a set number of marketing-qualified leads (MQLs) per month. Sure, that’s important, but if you accept our argument that it’s easier to sell to an existing company than bring in a new one, shouldn’t marketing really be focused on retaining and upselling to existing customers?
- Sales normally aims at closing a certain number of new deals per month. Again, no-one is denying that new customers are important. But what if your sales team were to be paid part of their commission 6 months after signing a new client, contingent upon the fact that the customer is still around? I imagine the sales team would think twice before running through leads so quickly.
- Product teams are often obsessed with developing new features. There’s a tendency to seek out the “next shiny thing,” and a certain amount of glory associated with building a fancy new feature. How different would your SaaS business look if your product team spent more time ensuring current customers used and were happy with current features, as opposed to developing new ones?
Implementing These Customer Retention Strategies
We hope you’ve enjoyed this exploration of the best customer retention strategies in 2021. Retention is an under-appreciated component of SaaS success, and yet there are so many resources SaaS companies have at their disposal to reduce churn.
What’s your favorite strategy to increase retention? Let us know in the comments below which ones resonated with you! We’d love to see you implement them.