Main illustration: Sean Suchara
Customer retention is the silent killer of SaaS businesses today. People get curious, kick the tires, shrug their shoulders and leave without saying goodbye. Even if you are acquiring new customers for $10, if they only stick around for a month or two, you won’t build a sustainable long-term business. To lower the burden of acquisition, you need customer loyalty; and the first step to happy, loyal customers is retention.
What is customer retention?
Customer retention is the rate at which your business can keep its paying customers over a given period of time. Customer retention is important to any growing company because it measures not only how successful they are at acquiring new customers, but how successful they are at satisfying existing customers.
Why customer retention is important
Most people think retention is so crucial simply because it means you lose fewer users than you otherwise would. But a sound retention strategy is actually one of your most powerful levers to grow your business by creating loyal customers and building valuable customer relationships. A study by Price Intelligently showed that a 1% increase in customer acquisition affects your bottom line by about 3.3%. But improving your retention rate by 1% extends customer lifetime value and increases your bottom line by around 7%. That’s right: retention can be twice as powerful as customer acquisition.
One retention tactic that works particularly well is lifecycle messaging: contacting users with in-apps and emails they will get value out of, based on their actual customer’s experience of using, or in most cases not using, your software. This improves customer satisfaction and makes a user more likely to hang around.
“The key to a good retention strategy is spotting the symptoms early”
For example, imagine a project management app sending a “Getting Started” guide to someone who had not created a project after a week, but also sending a “How To Work With A Remote Freelancer” guide to someone who is actively using the product in a particular way in the weeks following that. Whether they are totally inactive or just not taking full advantage of your product, messages like these will prevent them jumping ship as soon as something cheaper or shinier comes along.
Best of all, to create these message schedules you don’t need a “retention hacker”. You definitely don’t need a “retentioneer”. All you need for your lightweight customer retention program is a few hours to create a simple campaign of messages that will pay back many times over – and instill a culture of retention marketing into all aspects of your business. Building these customer relationships from day one, and optimizing the ideal experience, is the key to improving retention rates.
Read on to learn how to create a retention messaging strategy that will turn struggling signups into a series of churn-resistant long-term power users.
How to understand customer retention
The key to a good retention strategy is spotting the symptoms early with your existing customers. You’ll know you’re losing a customer when you see gradual disengagement. It’s important you act during this window, because once a user is gone, they’re very difficult to get them (and the corresponding lifetime value) back.
5 best practices for retention messaging
Some efforts are strategic, pertaining to specific tactics. Others are more like values that you can ingrain into your organization to improve customer retention rate and satisfaction across the board.
1. Understand what inactivity looks like for your product
For a communication product like Intercom, we’ll message our users after 30 days of inactivity. But the first thing you should make a call on is what “slipping away” means for your business (for example, 7 days of inactivity would be worrying for a daily planner app). Ask yourself, “Does a user of my product need to engage on a daily, weekly, or monthly basis to be considered active?” Note: Intercom comes with a predefined “slipping away” segment that you can edit to whatever makes sense for your business.
2. Use email early on
No matter how good your product is, your app isn’t a core part of your customers’ day-to-day lives overnight. But email is. If you notice periods of inactivity in those all-important first few days, behavioral emails will act like an extension of your product by relating directly to the actions your customers have taken (or not taken). This means you can reach people with relevant, personally tailored message that feel like a natural next step for them to take.
3. Target the right customers
Retention isn’t binary. There is a difference between someone who didn’t convert after a 30-day trial and a year-long user who has started to slip away. A trial user might require more education on the value of your product, while a lapsing user might require a check in from an account manager. Don’t let them both fall into a naive “we miss you” bucket. Treat them differently.
4. Be personal
Retention messages will only work if they’re laser focused in their accuracy. For example, if you’re speaking to a high-value customer who has contacted customer support several times already this month, your message will have to reflect that. Don’t email a customer who has several open support issues to remind them to login and don’t begin your mail with “Dear Customer”. These impersonal communications are noticed and slowly add up to diminishing customer loyalty and subpar customer relationships.
5. Be thankful, honest and respectful
Some amount of customer churn is natural. Businesses come and go, as does demand for your product. When a customer decides to leave, make sure they leave on good terms. If they have legitimate problems with your product, acknowledge them. Don’t delude yourself and fight back. Thank them for their custom and let them go. The easiest way to screw this up is to continue to spam them months or years after their departure. It does more harm than good.
“Facebook. Twitter. Google. Slack. These companies all have one thing in common – they create habits among their users”
6 customer retention strategies
Instead of thinking about loyalty efforts as a siloed retention program, we recommend embedding a culture of retention into your company. Now that you’ve got the underlying principles down, you can try one (or more) of the following strategies to improve customer retention rate – starting today.
1. Defend against churn early
The seeds of churn are planted the moment you acquire a customer. Even after initial onboarding, everything about your product is still unfamiliar, and you shouldn’t expect new signups to figure it out on their own. This is why creating a great customer experience is important from day one.
Many people will gravitate toward the one or two features of your product that resonate with them the most, but don’t explore other features. That means they’re missing out on some of the best parts of your product. In the first few days after signup, getting them to use those other features and discover new value works wonders for retention. You can do this in two ways:
- Invite signups to a webinar or demo that will walk your customers through your key workflows and concepts (we’ve found that new customers who attend a webinar are 6x more likely to activate than those who don’t)
- Create a “Getting Started” guide that’s brief, clear and proactively answers questions about features they might not be familiar with.
2. Help them achieve product mastery
For every passionate user who will do everything they can to upskill on your product, you’re going to have to try teach those who are little more reluctant. In educational theory they’re referred to as “grazers”. Unlike the hunter, they rely on being “fed” information to upskill them on a specific topic. Your product, for instance.
By proactively teaching people how to be successful with your product, over time they begin to master it. User mastery breeds customer loyalty, making education an extremely important retention strategy. Customers learn the esoteric features and the keyboard shortcuts, and this deep knowledge allows them to be drastically more productive using your product. When this mastery is achieved, the cost to the user of switching products becomes even higher, making churn much less likely.
3. Embed your product into their workflow
Facebook. Twitter. Google. Slack. These companies all have one thing in common – they create habits among their users. So how do you create these habits in your own product like the social media giants? If your product has a browser extension, desktop application or mobile app, promote it via an email or in-app message and make sure it’s easy to add.
By getting new users to integrate your product across multiple platforms, you’re increasing the likelihood your product will become a recurring part of their lives. For example, new Dropbox users who fail to install the mobile application won’t experience the full value of being able to access files anywhere. They will upload fewer files, use less space and are less likely to pay for more storage.
4. Embed your product into their organisation
“Customers don’t forget to use your product, they lose interest in it. So you have to motivate them”
Encouraging new users to build shared connections in your software is one of the best ways to make your product resistant to churn, especially for collaborative, team-based products like Asana, Intercom and Slack. By embedding your product deep into a company’s workflow, the product becomes an integral piece of how these companies operate and produce results, making it expensive to rip out.
It’s important to know when to bring other people into the fold. You should only ask new customers to invite colleagues or teammates once they’ve reached a milestone, or indicated they’re sufficiently engaged with your product. (e.g. has used a feature X amount of times, has imported custom data, etc). Making such a heavy “ask” too early in the relationship will likely mean your request will go ignored.
5. Motivate them with new features
Customers don’t forget to use your product, they lose interest in it. So you have to motivate them. There are some features that will bring customers back, or keep them from switching. By offering churning customers a glimpse of what’s coming down the line, you can excite them about future releases. Things that inspire people to stick around are usually features which save time (e.g. better importing), increase adoption or efficiency (e.g. integrating with third parties), or offer additional value for no extra work (e.g. weekly reports).
The best performing retention message we’ve seen is an email listing out all the features added in the past 30 days to users who are inactive for the past 30 days, ensuring that it’s always telling people about features they haven’t heard of. More importantly it follows the key rule of customer communication: don’t tell people to do something, motivate them to do it. Proper motivation is an underrated yet essential customer retention strategy.
6. Reactivate dormant users
Don’t take inactivity as a sign that people have lost interest forever. There are plenty of distractions from making the most of your product, especially if usage habits weren’t firmly established.
You can offer one-time deals down the road or wait for a big product or company announcement to try to re-engage people. But even if you’re months away from the next big feature set or don’t have anything new to show off, there’s still valuable material you can offer dormant users, whether that’s educational content like books or a paid survey.
The bottom line…
If you’re really in it for the long haul, for customer retention and loyal users, then you should be following some of the best practices and strategies outlined above before it’s too late. Just a 1% improvement in churn makes a massive difference in your compounding growth.
Acquiring new customers should be a part, but not the entirety, of your growth plan. A focus on customer lifetime value and retention rate might not be as appealing as the latest growth hacks, but it’s a more effective long-term approach. Take retention and customer loyalty seriously and your business will reap the rewards for years to come.