Why Retention is important?!
Acquisition and Retention are 2 drivers of growth. SaaS companies focusing on high acquisition channels sometimes totally neglect the importance of Retention and its dual effect of ROI and Acquisition. In this article, I will put forward my thoughts on why Acquisition at all costs is something that will hurt your SaaS business in the long run.
Let’s start with, what is Acquisition and what is Retention?
Put simply, Acquisition is the process of taking in new customers. Retention is the amount of active customers or users over a period of time.
Whenever SaaS companies talk about success or growth, we get the data/ slide on how many new logos/ customers gained for that given quarter or QoQ. Competition for SaaS founders/executives is increasing, customers are less loyal, and are churning at a faster pace.
Acquisition and Retention should go hand in hand, but putting all efforts into acquisition is something that will hurt your SaaS business in the long run. They both drive growth in different ways. But in order to proceed further, we should answer why SaaS companies (at least a majority) of them are obsessed with customer acquisition over retention.
The acquisition grows your customer base. Once we do have this data through the customer lifecycle of onboarding (sign-up) + activation, it brings light to the following information
- Provides vanity metrics — More DAU’s, campaign clicks, visitors on the page, etc. These metrics look good on the surface but provide no actionable insights on the future strategy.
- Acquisition results are evident and easily visible to stakeholders — Easy measurement of success, instant gratification without actually pausing to see if they provide any value to the customer/ business.
Everyone or the majority of SaaS companies has a salesforce integration. But what is interesting about this, as the relative value of features is going down, competition is getting tougher (differentiation is not what it use to be), costs of acquiring customers (CAC) are going up! Acquiring a customer is getting costlier for both B2B and B2C. This is all compounding itself, with everything happening in the SaaS space, we’re becoming obsessed with acquisition. From blog posts to talk about growth, we are so focused on acquisition which really moves away from our focus on retention and monetization.
So why Retention is important?
Prioritizing Retention pays off. SaaS Product Managers focusing on retention place a higher priority on aspects of their role that have the greatest impact. In fact, SaaStock 2016 concludes that by improving retention at the same relative amount as acquisition (by 1%), we will see just under a 7% boost in your bottom line. Monetization is even more, but on that, in some other blog.
Improving Retention and Monetization will have 2–4X impact of focusing on Acquisition — Patrick Campbell of Price Intelligently
So traditionally, SaaS founders’ / Executive' growth preferences are around adding more logos but from the data at hand, what works for growth is, the impact of improving retention as compared to acquisition.
- Retention has a better ROI — A customer becomes more valuable over a period of time, and a robust retention strategy will enable you to keep your current customers for longer.
- High Market Share — Companies focusing on retention are able to increase their market share more effectively as compared to their more acquisition-focused competitors.
- Reduce Churn Rate — Keeping churn rate in check, keeping flat churn rate in growth phases. Focusing on customer retention through the lens of product engagement — instead of measuring and forecasting solely using churn rate.
It is not an easy shift for SaaS Product Managers. This is the culture embedded in the organization and would require a lot of inertia to place a higher priority on customer retention.
Closing Remarks
Growth in a SaaS business is not only about adding logos. For consistent growth and financial planning, customer retention is extremely important. Focusing more on relationships in your inbound strategy will benefit SaaS businesses in the long run and where growth can be seen.
