After looking over all the aspects of Acquisition, & Activation is the first 2 phases now it’s time to explore the third phase of the sales funnel series– Retention. User Retention is the third phase of the sales funnel series. It is created with an aim to scrutinize each stage of the AARRR framework making it more understandable and adaptable for businesses of all sizes.
It isn’t enough to attract new users and give them reasons to use the product. For steady business growth, you need to hold them for a long time by creating a long-term relationship. In fact, it costs more to acquire a new customer. 70% companies say it’s cheaper to retain a customer than acquire a new one.
Going through the same process all over again is a cumbersome task. Besides, it’s time-consuming; why not put in efforts on the customers who already know your product. As per a research, increasing customer retention rates by 5% increases profits by 25%.
Would you purchase a new car if the one that you bought a year back isn’t working? Any sensible person would try to fix it, rather than investing in a new one. Similarly, work on your retention strategies for reducing churn instead of hunting for new customers. 55% of SaaS companies rate customer retention cost as the key metric to measure.
Proactive customer retention is especially crucial for a SaaS company, as users won’t take time to unsubscribe and turn towards the competitors if they are not getting the desired results. Like, if you are disappointed with the streaming content of Hulu, you will instantly switch to Netflix. As it has the best collection of movies and it also streams a complete series unlike Hulu that only offers a selected number of episodes from any given series.
“A satisfied customer is the best business strategy of all”- Michael Lebouef
Getting to the root of a problem
Yes, you are not immune to your competition. There are chances that your current customer might get tempted to try a similar product. However, that doesn’t mean you give up on them and ignore your competition. The key is to understand and solve the problem. Similarly, for retaining more users and reducing churn, you need to dig deeper and find out where is your product lacking.
- Why are your customers choosing your competitors over you?
- What more features or benefits are your competitors offering?
For that, you need to have a good understanding of your product.
- What are your strengths and weaknesses?
- What is the average time a user spends with your product before unsubscribing?
Fill the gaps in your relationship with the customers and work on powering your product by analyzing your retention metrics. Tracking and measuring retention metrics can help you in understanding where do you need to focus your attention on optimizing your product.
Below are some of the main retention metrics that you need to consider:
1. Customer churn rate
The percentage of customers or subscribers who cut ties with your company or service over a period. It is perhaps the point of reference when we talk about retention.
Calculation formula: (Number of customers at the start of the year- number of customers at the end of the year)/ Number of customers at the start of the year
2. Revenue churn rate
It is the percentage of revenue you have lost from existing customers in a given period.
Calculation formula: Monthly Revenue Churn Rate = [(MRR at Start of Month – MRR at
End of Month) – MRR in Upgrades during Month]/ MRR at the start of Month
3. Repeat purchase rate
It is the percentage of loyal and satisfied customers you have onboard who keeps purchasing from you.
Calculation formula: Repeat Purchase Rate = Number of Returning Customers / Number of Total Customers
4. Net promoter score
From a scale of 0 to 10, how likely are you to recommend this product to your networks? The answer to this question is your net promoter score. The customers who rate you 9 or 10 are your promoters and those rating you below 6 are the ones that need your attention as they might leave you anytime soon.
Calculation formula: Net Promoter Score = % of Promoters – % of Detractors
5. Redemption rate
Coupons with special offers and discounts is an effective strategy to bring a customer back. But how many of them are redeemed? Find it out by calculating the redemption rate that tells whether your customers are purchasing or not when a coupon is issued.
Calculation formula: Redemption rate= Number of coupons redeemed/ Number of coupons issued
Tactics to growth hack retention
Retention is the most crucial aspect of the sales funnel. Hacking retention can positively impact your business revenue if done correctly. An increase in retention can augment the lifetime value of the customer. It opens up the potential to experiment with various methods at the top of the funnel which might not have been possible before.
The customers who have been retained for a long time are more likely to speak about your product to their peers with the same business issue. Retention is a skill that needs to be mastered.
Here are a few tactics that can help:
1. Keep reminding the value of your product
A new innovative product always impresses a user. However, as time passes, they begin to lose interest and yearn for a more advanced solution. They tend to forget the initial pricing plans, offers, and benefits. Here is where your customer support comes into play. You need to remind them the value of your product. Create a strong customer success plan and give your existing clients reasons to use your product more often.
- Contact them at regular intervals and take their feedback for optimizing your solution
- Give them an assurance that you are upgrading with the changing trends and making improvements to enhance the user experience
- Keep them updated about the new features and upgrades
- Create and maintain a customer community that serves as a hub for knowledge and information exchange
- Host virtual events to engage and find out your customers biggest concerns
2. Upgrade your onboarding process
In the previous phases of this sales funnel series, we have already seen what makes up a proper onboarding. It exposes every part of your product’s capabilities and adds value to the user. A positive onboarding sets a lasting impact on the customers. Just because you succeeded in providing a good onboarding experience that doesn’t mean you forget about it.
It is an ongoing process. Whenever you make any changes in the product or upgrade it, your onboarding is also affected. Besides, your customer requirements are constantly changing- sometimes faster than your product. So, you need to demonstrate the usefulness of your product in real-time. Do ensure you collect enough data about the user before redesigning your onboarding process. You can also ask your existing customers to share their views about the onboarding process to find out what works and what doesn’t. To get honest feedback about your onboarding process, you can consider contacting the customers who left. You might feel a little uncomfortable, but it is necessary to understand why users don’t stick to you. The valuable information they share might help you in enhancing your process.
3. Rewards and strengthen relationships with your loyal customers
Loyal customers are the most valuable asset for an organization. Existing customers are more likely to renew their contracts rather than the new ones who have little or no knowledge about your product. Appreciate their loyalty and reward it for making them feel good. A little investment can help in driving profit. Use modern tools like a CRM software to find out who are your loyal customers and since how long have they been with you. Besides rewards, you can even send special customer appreciation emails to show you still care for them. The best thing is that you don’t even need to worry about remembering and manually sending these emails. By setting workflows in a CRM, you can automatically send appreciation emails to your valuable customers and foster your customer relationship for retaining your users.
Retention is all about the experience you provide to your customers. If it’s good, they will stick to you or else they won’t have trouble in finding a new product as there are plenty of options available. But a churn can crush your revenue. To avoid that, you need to serve your customer with unwavering determination. Revisit the approaches you used to engage with your customer and make necessary improvements to your product for providing a seamless experience to your users.
Stay tuned for the next phase – Referral of this sales funnel series (AARRR framework) to get smart tips and tactics on how you can use your customers to refer your product.
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