Retention strategies for SaaS

Do you guys know what is the, like do you guys know what is a cold open? What a cold open? Yeah. SNL is cold open. Yeah, SNL is cold open. So which is basically you start without having a conversation and then you just happen to go like a type of a thing and so this is a cold open. So I mean you should not call out the fact that it is a cold open but it is.

It gives you the buffer of about 10, 15 seconds that you need to make sure that you're live. And now I have received the notification from LinkedIn. So we are live. So it is great. We're live on LinkedIn as well as YouTube. And so let's start with the introduction. So hello and welcome to Momentum of SRs. My name is Yash, and I'm joined by my co -founders Harsh, Jay, and Kaushik to discuss topic of the week, retention strategies for SaaS companies. Our goal is

is to provide you with actionable insights and practical strategies that you can apply to your own products. Throughout the session, we encourage you to engage with us by asking the questions in the comments and sharing your thoughts as well. This is a fantastic opportunity to learn from each other and give you insights that can help you drive your SaaS initiatives forward. So let's get started. Jay, Harsh, Kaushik, how are you doing today? Good. Nice.

topic is up. So we can know what we are going to talk about, which is retention strategies for SaaS. How do you want to start? Let's start with a question. Raj, what do think? Yeah, sure. I'm open to answer any question that you have. Yeah. So let's start. So just start with the retention. So we can say when any customer do sign up.

and then convert to the best customer. So between these journey, we have different strategy to retain our customer. And even after converting from free to pair, then after for such like we want to retain our customer for the long term. Right? we can also follow some different strategy. So what do you can you elaborate how many, what are the different strategies in each stage and how can we differentiate? Sure.

So first of all, with respect to bringing on what strategies should we have for retention, it totally depends. When it comes to SaaS, it's totally dependent on the big stage you are at. So there are a lot of articles, a lot of things that you must be hearing from that, OK, to retain your customers, you want to do this, you want to implement this. A lot of times, what we have seen with early -stage founders in SaaS, they focus on building new features, just taking on building the roadmap.

and then focusing on building new features. But then to answer your question, Harsh, I would like to segment it in three stages when it comes to what strategies one must follow. And there are ample of strategies for sure from building product standpoint as well as customer success standpoint. But let's jump on each and every one step by step. So if we talk about early stage as you don't know, since you are doing lots of experiments with customer acquisition, right? So we don't know that.

What could be the right customer acquisition cost because there are a lot of different strategies that you are experimenting with in those cases if you Read multiple playbooks. You might not be able to get the accurate answers on what you think to follow So if this case first priority should be to improve the onboarding Okay, so as to make sure that it is as personalized as possible. Now when I say personalized it does not necessarily mean that Just by you know one

you give some options in your onboarding journey, selecting that everything is personalized. You might want to have as many as less questions and just want them to jump into the product. Once they are into the product, you might want to make sure that you know, maximum value is being driven from the same. So the second would be activation. So initial level, first of most thing would be to optimize the onboarding and then prioritizing it in a way. For example,

Let's say in a dashboard you are getting some form of data. Now this data is done different target groups that you have defined identified earlier. You might want to select some checkbox in the onboarding site. You know, let's say user doing that process is selecting that particular dedicated target group from there. And after selection of that, once the dashboard loads up, it only loads up the relevant features. Right. So that is one. So again,

Out of the three stages of SAS journey, and of our early stage, one thing will be to smoothen the onboarding and also increase the activation numbers so as to give maximum value. When it comes to second case where it's a, let's say, a growth stage of SaaS company. In this case, what would happen is you know the metrics, you understand what is customer acquisition cost, what channels are driving, sort of customers and everything.

In this case is what you might want to do is to make sure that you ensure there's a retention because now you have certain set of customers who have already paid and were already using your product to make sure that they are retained. You might want to ensure that you know some more features are being developed for the people who are highest paid customers. So you might want to figure out the highest paid customers amongst these and based on that try to understand what are the specific set of features that could be used by them.

By giving this, would happen is that they are always looking for something new for the money that they have invested in. So in this way, they are getting more value. This in itself also, by the way, helps in getting more upsells, but you can charge more for the product and making sure that they are also using it because they have the value. So when it comes to scale -ups, can see especially in the growth stage, you might want to figure out these. And when it comes to...

case where it's a mature company that in this case is obviously it's a very high number when it comes to the ERR and MRR whatever the amount it is the amount can be really high and this in this case it is very important for us to have you know even a slight difference in so let's say 1 % of churn or you can say by reducing 1 % churn also you will be able to save a lot of money and

The priority will be to set up a team for customer success and making sure that even for setting up this team, their core KPI would be to increase the NPS and along with that, I would say their core focus will be to reduce the channel and their whole incentive will be based on the amount of reduction of turn that they are able to.

So yeah, in crux it will totally depending on the stage at which the SaaS company is and the approach will differ accordingly. Interesting. So the other thing that I want to understand is that broadly SaaS can be categorized into two things, right? So you have small ticket SaaS, which is more often than not inbound self -serve sort of a journey, which is where we are expecting people to discover the SaaS, sign up, activate, pay by themselves with limited or no

intervention from customer success or customer support. And then there's a second category of SaaS, which is enterprise SaaS, which is where it is a sales led motion, you have SDRs, have BDRs, have demos, account management teams and so on and so forth. When we take a look at retention in both cases, which is inbound versus for now, let's say a small ticket versus large ticket or SMD SaaS versus enterprise SaaS, what is the difference in retention strategies that you

that you see between these two categories of SaaS products. Right. So especially when it comes to SMB SaaS, it's more about product where product in itself is retaining. And when I say product in itself, it does not necessarily mean that features should be such that they will stick to the product because obviously that is always a priority that features are such where the value is being generated. Before answering, what is the difference, I would like to say

One thing which is common in both the cases is higher activation rate. want the user, SMBs, we want to make sure that they are getting the value as soon as possible. Coming to the point where the difference is, so in the SMB case, we want to make journeys in a way where the value is being driven, but then also there's some form of repeated value being driven. So for example,

there could be some SaaS companies which are some products which even we must be using it, but we might not be coming to the same time and again, right? There is a report which says that even after the purchase of the product, especially I'm talking about SMBs, it's just hardly 80 % of people who again open or log into the same product, they just don't do it. So what needs to be done in this case is you might not be able to give that much value in even the small.

And especially SMBs, they're utilizing multiple tools. Frank, we always talk about which is cheaper option and likewise things tend to happen a lot of times, which you've also seen in our past products customer segment. So in this case, the product in itself should add value and for them to be our advocates, we might want to give them some other form of valuable. So for example, we might want to give a newsletter which is coming on every week and

giving some insights, use case, or some other form of value. That's what should be there. So from product standpoint, product should be such that it is easy to use, but along with that, some additional pointers for them to get value from the product itself, knowing that it is not just a product, but it is something which is giving me more value and helping me to scale. When it comes to enterprise, the whole focus is to obviously the customer success team.

and as well as the initial level. So then it is important that they are doing 30 days, 60 days, 90 day check -ins with the newly onboarded customers. making sure that the onboarding is done in the right way. They're also ensuring that the request by highly paid customer is being meted because in these cases there could be lot of customizations as well. What happens at times is the...

The time to solve that customization at times is also missed out. Ultimately, it boils down to one thing that difference in both the cases, in SMBs, it's more of a product as well as some external efforts to drive the value. Whereas in enterprise cases, obviously, the customer success is the main stress. also, this does not necessarily mean that product should not be enough and adequate. Product should in itself get that value.

and then customer success adding to that will make sense. So before we move to Kaushik and his question, we are going to do something that I don't know how it will work out. I think there is some audio issue in the line. So Jay, is it possible for you to disconnect your earphones? Yeah. And then we'll see what happens. Yeah, I think now it is gone.

Yeah, can you speak a couple of things now? Yeah, sure. Am I audible clearly now? Yes, you are audible. And I think the issue is gone as well. perfect. Awesome. Any questions from your side? Yeah, so Jay, while you were talking about in the previous questions that you were answering, you were talking about the churn part. So how does so?

Analyzing the churn also is an important part which gives you insights about how to plan for your next retention strategy. So how should one go about analyzing churn rate both in low ticket and in high tickets? So how would you approach that? Yeah, so just to be clear with the numbers set, when it comes to early stage, definitely, I would not say it is affordable, but then there could be a case where

you are just having let's say

1000 MRR, it's a very fairly early stage, right? In this case is even having 10 % turn rate, 10 % of revenue turn is just something that is $100 in this case and in a month. And same way for a company which is having let's say 40K MRR, for them having the same 10 % turn rate is like $4 ,000. So they'll have to compensate by adding more $4 ,000 in acquisition, in customer acquisition, whereas

when it comes to the earlier case, where is this 1 ,000, which is early state. So the approach is not just by calculating. It's not just based on calculating the churn rate. Obviously, you will see lot of places where you'll hear a lot of great speakers talk in SAS talk about that churn rate should be less than 3 % and everything. And that is important once you grow at a certain level. But then when it comes to.

Churn, it all depends on how much is the acquisition, how many repeated channels you have for getting more customers, and what are the actual numbers. So you just don't have to look at the churn rate. Rather, you'll have to look at the complete funnel, or how many new people are getting onboarded, how many of them are just like what Yash mentioned, the whole journey. So how many people are coming from website visitors, how many are converted to signups, from signups how many are paid. And yes, from there, we can take it further on.

what are the numbers and how we can take it.

Okay, so we can say churn rate is one of the matrix right to follow the return to know the it is also useful to know the rotational matrix right. So what are the other matrix that are helpful to know some you can say the rotational count right. NPS or any other matrix we can follow. Yeah for sure so sorry.

So when it comes to the other metrics, especially for retention, two primary factors, two primary numbers are, first of all, the churn rate in itself, and the second is the NPS. You would want to know how happy is your customer. And obviously, NPS anywhere from 30 to 50 is considered to be decent, having more than 50 as an NPS.

is really great, but then having lesser than 30 is where a challenge starts. And again, this I would consider for the case where it is applicable for all the stages for SAS, but then it is more relevant when it comes to growth as well as mature SAS companies. And when we say, when we talk about what metrics are important, mean, as a SAS in itself, there are a lot of metrics important, and all are interrelated. So I would not say that you have

whether you are measuring, you are having decent retention rate, having just your churn numbers. mean, churn rate would itself tell you the value, but then again, it also depends on what is the lifetime value of a customer, for how many years the customer is staying with the product, and a lot of other factors as well. So it is very subjective to what product you have and how value we are generating.

Is there like, so just for the people who are attending this, think there are two ways to measure NPS. One scale of NPS is 0 to 10 and the other one might be like 1 to 50. And so there are different benchmarks for the 0 to 10 NPS and whether different benchmarks for 1 to 50 NPS as well. like,

Do you think that there is a healthy churn rate that a SaaS should have? Is there a percentage of churn that is considered that hey, it's okay. If this much amount churns, it's fine. It's not a problem. I believe it would be less than 3 % if it's anywhere between less than 3 % it would be 3 % monthly churn. Yes, 3 % monthly. Got it. Got it.

that would mean about three and a half years of lifetime value. know, way or the other. it. Understood. And so the other piece from retention standpoint, who owns retention? Like whose job is it to make sure that people who are using the product are retained with the product? Is it the account manager? Is it the product manager? Is it like who works, who makes sure that

the customers are happy or customer success. Yeah, so I mean when it comes to customer success, it's 100 % of their KPI to make sure that you know customers are happy and their whole incentivization should also depend on the same along with obviously the amount they upsell that is another part where they should be incentivized. Even the product manager, I would not say that it's not their job at all but then

They have many different roles to play when it comes to the whole product. I mean, with respect to everything from onboarding to purchase as well as retention is being taken care of. So some fraction of KPIs we can consider for product manager. But then if you ask me about 100%, then it is customer success who is responsible for this.

Because I've heard customer success people say that the marketeers over promised on the website. The salesperson over promised in the sales card. And then the product managers say that the turnaround time of resolving tickets is extremely high because of the customer success. so it's so like one of the things that I've seen in my limited experience is that retention eventually ends up becoming

the co -founder's metric or the headache to fix because everyone will push it on to the other customer success will be like the features not being pushed product will be like sales over promised sales will be like you are not resolving tickets and stuff like that but so customer success should own that is what you saying customer success should own that if that is the case as you may I mean that is right lot of times everyone has a reason right even sales people have a reason that

marketing is not doing up to the mark and so we are not getting right leads but ultimately it's a job of sales presence, same way it's a job for customer success and obviously if there is any, so let's say some marketing team has some form of, let's say in any case it is over promising certain features then I believe customer success themselves should initially pinpoint things earlier and maybe they would want to product request to be fulfilled and then so this challenge gets.

I sorry I interrupted Harsh, I Harsh you were saying something. Yeah, yeah. we can say, I also have seen that to increase the return rate and to increase the return rate, we are changing the pricing structure, right? Like currently we have some 14 day trial, but to increase the return rate, we are giving the free trial, free plant lifetime, right? Or we can increase the price of some pro or enterprise plant, right?

So what are our think on this? How we can decide our pricing or in which stage we have to change the price to increase the retest time? Right. So for that, first of all, when we are talking about churn, now again, I would answer it based on the stages. So for early stage, especially if you ask me, you would want to introspect on why customers

know, it's being lost and in those cases we might want to have some interviews with them try to understand what is the reason behind that. In this set of interviews if it is a repeated pattern where pricing was the concern and that is why they were losing I mean that is why they were moving on to some other product in those cases we might want to change the pricing so a lot of time what happens is that an early stage founder is doing some experiments with pricing and that's why

they themselves have a notion that I raise these prices, I mean I increase these prices and now it is not working but it's not always the case because a lot of factors involved for example someone has a competitor who is even giving lesser features at a higher price and still they were able to sell it right. So it all boils down to understanding the customer and reason why they are you moving to other product when it comes to early stage and even for the growing stage or a group

growth stage, sales company as well. These feedbacks are very critical. having 30, 60, 90 days feedback is one of the reasons why we try to understand what challenges they have. And I mean, pricing, it affects for sure, but then it's not necessarily that pricing in itself will be a reason for. However, since you asked this question, there was one interesting point that I forgot to add.

earlier when it comes to pricing for, I mean, how can pricing be effective for retention? So there's this company called Exploding Topics. they were able to reduce, they were at a, they were, I mean, early stage, but not that early stage. And in those cases, had like churn rate of, I mean, they were able to reduce their churn rate from 10 % to nine.

And that is 10 % to 3%. And that is something which is a great thing to achieve, right? Because it obviously brings up a lot of numbers. So in that, one of the factors that they focused upon was that they did not give discounts in case to reduce the churn. But then what did they do was that they focused on giving discount on only annual pricing. So for example, let's say Black Friday is there. They would want to give an offer.

So what they would do is that they would only give like give an option for opening for annual plans. What happens at times is people give discounts on both the cases monthly plans as well as annual plans, but focusing to give discount only on annual plan will give an idea that I mean it will definitely help reduce the churn to a lot of aspect and it also increases the LTV in itself. Right. So that is something which is important.

The other thing which they did was creating avatar -specific personalization on boarding. So they were having a certain set of users. What they did was not just understanding that what target users are paying us more, but rather understanding the individuals, which helped them get into further niche on what target segment they had and what were the specific use cases. Now, based on that, they were able to derive some conclusions that helped them with

better onboarding and also help them create features only for them so as to reduce the return area. By implementing these three, they were able to reduce it from 10 % 3 % in a span of few months. Yeah. that question covered. Please go ahead. I was just going to ask that building a community also benefits a lot with respect to retention.

Currently, think it's a very common strategy that we are seeing a lot of AI based products where all of them have a community and like even before the product is built or it's still in an MVP stage or something, you still have the discord committee where they build the community first, try to understand it and you know, so how do you think that is helping the retention? Like how can you take insights from a community and use it for your campaign? Yeah, I mean,

It definitely helps, right? So otherwise, if I mean, first of all, thanks for highlighting the point on community. totally missed to mention it earlier. How it could help is like basically you have, let's say you're not building a community and you are just building the product on yourself. At times what happens is people are not open to sharing why you would want to go ahead with, you would not want to go out with the product and why you want to jump into another and likewise.

However, building a community helps you create your own image as a thought leader, which would lead more people to jump into your product and belief in the same as well. Along with that, there are a of discussions that happen in the communities that could help. Once you analyze those discussions, it could help you select and prioritize what features you might want to have inside the product as well. And this all, again, turns, boils down to one thing that

with implementation of these it would help us to increase the activation rate and give more value to the customer and hence they will be retained for the product for a longer time. And so the other piece around community as well, is that so there is a power that a group has, that an individual doesn't. So as an example, if and it can work both ways for good things as well as bad things.

But so, think of it this way, right? If I want to have a drink tonight, I alone, it's not fun. But if there's a group, then it's extremely fun. On the flip side, if I want to give up drinking, doing alone is extremely difficult. But if there's a group of people who are doing it along with me, then it gets a little less difficult, right? And so that's why you have, you typically have parties where you have other people, where you drink together or you go to

like groups like AA or something like that, alcohol and anonymous, alcoholics and anonymous and stuff like that. And similarly, when I'm using a product, I can see testimonials and all of those things, which showcases that other people are using it. But when there is a portal where I can see that there are other people who are like right now using it, who might be facing similar challenges as me or who have different challenges that I have solved for myself.

or I have challenges that they have previously solved for themselves. So that as a group sort of makes me, gives me the feeling of belonging, right? I feel like, okay, this is a place where there are other people who are like me and I'm a part of it. So, and subconsciously sort of, especially for SMB SaaS, right? For SaaS that has customers who are very small businesses, community plays a larger role. For an enterprise SaaS, I would say that the community plays a role of

just taking off load from support. So instead of having support answer all the queries, the community also sort of comes in and answers some queries and things like that. So that's an interesting play as well. And so I think we are towards the end of the conversation. So one last question. So one of the things that I do as a person who subscribes to a lot of SaaS products is that I wait for the expiration date to come near.

before I renew the SaaS because I know that as and when the expiration date comes nearer and nearer, I will get more and more discount on my renewals. So how much discount is too much discount for the purpose of retention? Because think of it this way, if there are three people like me who are going to churn.

Sorry, if there three people like me and let's say out of those three, I would have churned but the other two would have stayed. But if all three of us are deploying the same strategies, if all three of us are getting 30 % discount, then essentially while customer churn hasn't happened, revenue churn has still happened. And it's the same, right? So all three of us get 30 % discount, means that I...

It's equivalent to me churning away from financial standpoint. So how much discount is too much discount? That's a good question. I mean, again, to answer that, I may not have the exact answer to be honest on what discount would be the exact discount, but one thing for sure is that I would prefer to, if I have choice to reduce one, would prefer to choose on reducing the

customer churn rather than revenue churn because today like if I'm losing one out of three customers then I might not be able to you know sell them again but then having them and giving them a good number of good amount of discount today might help me to upsell later or even the lifetime value in itself increases because that person is not going to go over necessarily in the next month. it comes out to be around only focus I believe should be that unless and until

the average customer life remodeling is not amped much giving discount to certain extent for the people is coming to be aware. So I think what you are saying is that if the financial impact is the same, revenue churn is better than customer churn. If the financial impact is the same. Right. Right. So ultimately if my ARR is going to be going to stay the same at the end of it all, then letting the revenue go

is better than letting the customer go. Letting the revenue go would happen via discount. Obviously, letting the customer go would be churning away, which makes sense. So absolutely, because it's one more person who can refer, one more customer who can write testimonials, one more customer of everything. Awesome. Thank you. Thank you, Jay, for joining in today and answering all the questions. was a cool conversation. It was fun.

And hope for everyone who's been joining us on YouTube or LinkedIn, I hope this was valuable for you. Thank you again for joining in. We keep meeting every Wednesday for 30 minutes, doing these live sessions around SAS, around interesting topics. I think next week, we'll be having Harsh talk about something around technology. We don't know what it is going to be. We'll find out next week, Tuesday, and then we'll be in front of you Wednesday as well.

Thank you again for joining in. Until next time. Bye. Bye. Bye.