Reasons Why Customer Retention is So Important for ROI, Customer Loyalty, and Growth

Reasons Why Customer Retention is So Important for ROI, Customer Loyalty, and Growth
Customer retention
Suprej Venkat Sep 5, 2022

Reasons Why Customer Retention is So Important for ROI, Customer Loyalty, and Growth

SaaS businesses who fail to think about customer retention are missing out on a vital opportunity to grow their business through loyal customers. For each new customer you acquire, it pays off to focus on increasing the ROI by retaining that customer for as long as possible.

In the SaaS world, customers who are retained in the long-term and keep on repeatedly paying their subscription are essential for long-term growth. It’s 6 to 7 times more expensive to acquire a new customer than it is to retain an existing customer, so customer retention has the potential to have a big impact on profits.

What is Customer Retention?

Customer retention refers to a company’s success at keeping hold of its customers during a set period of time. Retention is affected by the number of new customers acquired during the time period and the number of customers who churn by terminating their subscription.

The team that is usually responsible for managing customer retention is your Customer Success team, who are typically tasked with engaging and delighting customers. They can also cooperate with other customer-facing teams like sales, marketing and customer support to ensure that customers are successfully retained.

Customer retention persuades customers to purchase further products and services from your business, as opposed to customer acquisition which seeks to convert the customer for the first time. Increasing customer retention by 5% increases profits by 25% to 95%.

Why is Customer Retention Important?

1. Customers care less about price

Long-term customers of your software truly understand the value that your product brings to them. This means they will be less sensitive to price increases as they will be aware that your company is always shipping new features and releasing upgrades.

Retained customers of your SaaS brand understand that prices need to increase in order to keep pace with rising costs, as opposed to new customers who are always looking for the best deal. Loyal customers are also willing to pay a premium for quality service and they know that your business always delivers.

customer success onboarding

2. It’s a predictable source of income

When you spend all your efforts on acquiring new customers, it’s very hard to predict what your revenue is going to be because the success of your marketing and sales team is unknown. The advantage of having repeat customers is you can rely on your repeat customers to keep the business afloat – even during the tough times.

As long as you keep churn under control, loyal customers can be a reliable source of income that means you can undertake growth initiatives that wouldn’t otherwise be possible.

3. More additional purchases

The probability of selling to an existing customer is 60-70%, while the likelihood of selling to a new customer is just 5-20%. This means that customers you have retained are more likely to spend more money with your business and are 50% more likely to try out new products that you have to offer.

Customers who are already using your software know that your business offers a superior service. When they have a need for a product they are likely to turn to your company to meet that demand.

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4. Generates advocacy and referrals

New customers are unlikely to recommend your software to others, as they have only just started using it and haven’t yet found out for themselves if your product is worth it. Long-term customers who have been retained by your brand are a goldmine of referrals which increases customer acquisition – all for free.

Repeat customers who have been using your software application for a long time are more likely to share their positive experiences with others. This could be anything from telling a friend about you, recommending your app to a colleague, to leaving public online reviews about your product. These are all powerful ways for your business to acquire new customers.

5. Reduced marketing spend

It’s much easier to market to existing customers of your business than it is to reach out to new ones. Existing customers already trust you and are familiar with your products and services, so it’s much simpler to convince them to buy again. It costs $7 to market to an existing customer versus $34 to market to a new one.

Loyal customers are more open to making repeat purchases from your business so you should definitely think of them when designing your next marketing campaign.

Wrapping Up

When it comes to the growth of your SaaS business, it’s not all about the acquisition of new customers. Acquiring new customers is very expensive when compared to nurturing the potential of your existing customers.

There’s always the possibility of upgrading your customers to higher-paid tiers and increasing their customer lifetime value (LTV). Upselling to a loyal customer is considerably easier than convincing a brand new customer to sign up for the first time.

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