What are customer retention models and what value do they provide?

Introduction to Customer Retention Models

SaaS companies are interested in predicting future customer retention – that is, how many customers are likely to stay with the business and make repeat purchases based on factors like past behavior. Built on the subscription models, the majority of a SaaS company’s revenue comes from existing customers rather than new customers, and that’s why loyal customers need to be nurtured and retained.

Using a customer retention model means you can gain insight into how you can develop your customer retention strategy. It can help you inform your strategy by deciding which customers to focus on and which activities drive revenue.

Customer retention models tell you which marketing activities are going to be the most influential on retention and churn, giving you much better ROI on your marketing budget because you can then exclude those activities which are less successful. Therefore, anything that can help businesses predict the likelihood of retention is important to engage in.

What is Customer Retention and Why is it Important?

Customer retention is the number of customers that remain with your business within a given time frame. For SaaS companies, it’s the number of customers who consistently renew their subscription rather than simply churning and going elsewhere. Customers who renew have a direct impact on future profits, revenue and growth, and makes your SaaS business more sustainable.

Better customer retention results in more loyal customers who stay committed to your business, make repeat and higher value purchases, and recommend your business to others. SaaS businesses that focus on retention as well as acquisition are poised to surge ahead of their competitors as they have the right priorities.

Read more: Customer Acquisition Vs Retention – Statistics And Trends

Customers you have retained make regular purchases and contribute to recurring revenue, allowing your business to remain profitable. So SaaS businesses that pay attention to customer attention can ensure they are on the path to success, keeping hold of those customers that provide them with a source of sustainable income.

Are There Different Types of Retention Models, and What Makes Them Unique?

It’s important to use retention models in order to predict buyer intent. There are a number of different models you can use that offer alternative ways of understanding customer retention and how you can improve it.

The three main types of customer retention models are:

Next purchase models

Next purchase models use past sales figures to determine the probability of your current customers to make another purchase sometime soon. If you can identify these customers early, you can focus your marketing efforts on nurturing these customers who are more likely to buy rather than customers who are not yet ready.

Uplift model

Uplift models tell you which customers are most likely to make another purchase by giving them a score that predicts the probability of receiving a response. It helps you identify those customers who will buy again without requiring any intervention from your marketing team.

Response model

Response models help you understand whether customers will respond to a marketing campaign, which could be classified as something as big as making a purchase or small as signing up to your newsletter. Response models look at past behavior of customers to see how they responded to your campaigns and make predictions about the future.

The Benefits of Using Customer Retention Models

Customer retention models have many benefits, not least because they help you focus your efforts on the most profitable activities for your existing customer base. Not all marketing activities are created equal and you’ll want to focus on those with the most likelihood for success. Instead of wasting budget on trial and error, you’ll be able to create a strategy with a strong chance of success.

When you use the data properly, you can leverage past behavior to predict future actions and thereby get a handle on retention. Instead of simply looking back at trends which are already irrelevant, you can use the data to make accurate predictions which then inform your customer retention strategy.

You’ll be able to identify those customers who have the most potential for growth and create targeted campaigns that appeal to them. Rather than losing these most valuable customers to churn, you can instead work on engaging them and persuading them to take desired actions. Thus, customer retention models help prevent churn and drive revenue.

How to Implement a Customer Retention Model in your Business

There are three main steps you need to go through when deciding how to implement a customer retention model in your SaaS business.

Identify your customer retention goals

First, what do you want to achieve with customer retention? Perhaps you want to increase customer lifetime value, or raise upsells and cross-sells. Your goals will tell you which metrics are best to track and allow you to measure progress, as long as you know where you want to go. Having a goal means you know where you are going and what you want to improve with customer retention.

Collect the relevant data

Then, collect the relevant data for analyzing your customer retention models, making sure it is both clean and reliable. You can start by looking into the transactions that customers make with your business which show you how often and how much customers spend with your company. Data can come from all sorts of sources, including your customer success tools.

Work out what makes customers stick with your product

Finally, identifying the “aha” moments for customers who are regularly using your product is important for customer retention modeling. You’ll want to work out which actions customers typically take when they are highly engaged with your product, which represents the likelihood of retention. These successful moments are different for every business, but must be clearly defined in order to improve retention.

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Conclusion and Key Takeaways for Improving Customer Retention

Retaining more customers is an important way for SaaS companies to stay profitable, and using customer retention models is a powerful method of improving your strategy. Without these predictive models, SaaS businesses are unable to take action that will definitely raise customer retention.

Read more: Ways to improve customer retention rates in SaaS

Customer retention models mean you can rest assured that your strategy is going to successfully retain more customers, rather than having unforeseen and unintended effects. Using the power of data means you gain real insight into the behavior of customers which then tells you what they are likely to do next.

Improving customer retention is only possible if you use the data to make predictions about whether customers are going to stay with your business. Use Customer retention software to analyze the data and drive the best results for your business.

Key takeaways:

  • Customer retention is important for long-term profitability
  • There are different types of customer retention models which can all have an impact on your business
  • Feeding reliable data into customer retention models results in accurate predictions
  • Customer retention models support SaaS businesses to achieve better ROI for marketing
  • Customer retention models support the revenue goals of SaaS businesses

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