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Written by Harrison Rose Chief Customer Officer
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15 May 2020  |  SaaS

Customer retention strategies to hold on to your Q2 revenue

Ask yourself this. At a time when some revenue drivers aren’t working, it’s important to think about what would be the best thing to focus on. At Paddle we’re helping our customers keep hold of the customers they’ve already worked so hard to acquire. Here’s how you can do more with what you’ve got.

In the Covid-19 era, a lot of the conversation at board level or C-level has shifted towards retaining existing customers, rather than putting all your energy into acquiring new ones.

A great starting point is to take the temperature of your business and see where it’s at 🤒 

In the last two months, has your revenue been rising, falling or staying stagnant?

Are you still managing to acquire new customers or expand into some existing accounts, or on the other hand, have you started to see a rise in cancellations or people pausing their subscriptions?

As times are getting harder, we’ve compiled some handy tips and tricks when it comes to developing good customer retention strategies.

What does SaaS look like right now?

Recent findings from the Revenue Collective show us just how tough it is out there for businesses to do almost anything right now. 

More than 95% of revenue leaders said their business was affected by Covid-19 in March, while the vast majority had begun to reduce their forecasts for 2020 by 25–50%.

Revenue Collective - Covid Impact

Just ONE per cent of businesses said they were increasing their forecasts, thanks to companies such as Zoom or Slack who are doing better than ever as we all work from home.

And if we’re thinking about customer retention, data from Profitwell showed that March 2020 was the biggest month of churn for businesses in SaaS history 🤯

Compared to a pre-Covid benchmarks from Hubspot:

  • The rate of deals being created and closed since the beginning of March has fallen by as much as 30%.

  • However on average, website traffic for businesses has risen across the board — by more than 20% at certain points. 

  • The amount of marketing and sales emails has risen in tandem, and what’s comforting is that the open rate of those emails has similarly jumped. 

  • On the other hand, customer response rates to those emails have dropped by nearly half.

hubspot-covid-summary

People are spending more time online and consuming more content, but ultimately that activity is not translating into real sales conversations or closed deals. 

This is backed up by data from Intellimize which shows us that web conversion rates through products such as trial subscriptions are dropping.

If you break that data down by business, it’s ecommerce and finance businesses that have been the worst affected with conversion rates falling by around half in early April. 

By comparison, B2C SaaS and B2B businesses saw their conversion rates jump in the second half of March before plateauing, but retaining a positive rate.

At Paddle we’ve seen a lift in regions that have been locked down increasing in performance, particularly in B2C. Italy reported a sales increase of 38% during its quarantine period.

What we can learn from this is that as new revenue lines broadly dry up, it’s more important than ever to start breaking out your data so you can find your best opportunity for success.

Paddle Appcues webinar banner gif (4MB..)

In our Churn Prevention Webinar we ran last week, Eric Keating from Appcues said the focus of most messaging now is geared towards retention strategies, compared to acquiring new customers.

“There are specific types of content right now that are certainly attracting more interest. While an obvious one is retention, the other is doing more with less. How can businesses save time and be practical to make the most of the situation?”

What growth levers should you focus on?

What we’re now starting to talk to businesses about is that marginal improvements in dollar churn have a MASSIVE impact on revenue .

Should you be trying to increase acquisition by 12–14% each month, as some of us may be doing?

Or to achieve the same outcome in terms of dollars, should you look to reduce dollar churn in terms of customers by 1%?

See Ed’s post for an explainer on how each growth lever impacts your business. If you want to know how much value these strategies could bring you, we made a handy dollar retention calculator to help you along.

Acquisition vs Retention

We mentioned in the webinar last week:

“Improving dollar churn is something that can be achieved by every SaaS company out there, and can be done if you prioritise some of the right things.”

Here’s a bunch of starting points that can help you achieve this outcome.

A quick refresher on some definitions when it comes to churn :

  • Voluntary “active” churn: Customers choosing to cancel their subscriptions.

  • Involuntary “passive” churn: Churn coming from subscriptions being cancelled due to failed payments.

  • Pre-churn: Churn that happens before the subscription renewal is due.

Post-churn: Churn that happens after the subscription renewal was cancelled or payment failed.

Key Takeaway #1: Remember: not all customers are the same

product-led-flywheel-summary

If you’re thinking about introducing compelling offers or creating cancellation surveys to limit churn, it’s important to understand where your customer was in their journey at the point of exit.

Some will provide feedback regularly, and help your product grow through giving word-of-mouth recommendations. Others may have only just bought your product and are starting to explore its more advanced features, or are sitting in the trial or demo stage.

The greatest opportunity right now most likely lies within those customers who are new to your product.

You’ve already done the hard work to get them on board in this difficult period: now it’s time to make the most of it.

Key Takeaway #2: Are you segmenting your churn reduction strategies?

It’s never too early to start implementing these strategies, no matter how small your customer base is. But it becomes even more important as you start to scale that you make sure you’re not neglecting your long-term users.

Activation of your customer, meaning the moment they see value in your product, is an outsized driver of revenue.

If you can get more of your customers to stick around from week one, you’re going to see higher retention rates from there on out.

So figure out what that moment is for your customers: if you can gear your product around achieving that moment in the first week of use, activation will become your greatest lever for retention and make the most of increased web traffic.

Great onboarding is similarly essential to retention. Get everyone in your company involved in making sure all your customers feel valued, new and old.

You should be motivating your users to reach their goals, educating them about how you’re solving their problems and guiding them towards taking meaningful action.

Some great solutions to these goals could be implementing progress bars during onboarding, or designing your product tours around the activation moment.

onboarding-appcues-motivating-users-to-reach-goals

MailChimp and Quora are great examples of how to use a progress bar so your customers feel motivated to complete their onboarding journey with you.

appcues-onboarding-educating-users-2

Grammarly shows how to effectively design a tour of its product around its most popular features. Note how it populates a chunk of text for users to play with, making the time to activation much faster and smoother.

appcues-onboarding-educating-users-1

Basecamp knows that the core value of its product becomes evident only after a user adds people to their team. Pop-up helpers or tip boxes remind users how best to use the product to push them towards activation.

Make sure you’re not losing your customers today

Typically, you can expect about 20–40% of your churn to be involuntary. Most of that churn will be coming from card payment users, where the payment fails because you haven’t been able to charge them successfully.

While it’s not a nice thought that a sizable chunk of our churn is passive, fortunately practicing good payment acceptance strategies can help bring that number down

Payment acceptance is trying to stop payments from failing in the first place, and thereby avoiding having to enter payment recovery. By focusing on acceptance, it avoids the customer falling into passive churn in the first place.

(When we ran a poll in the webinar, only half of attendees said they were even tracking payment acceptance as a metric).

You can measure payment acceptance by calculating the number of successful payments made over the number of attempted payments. It can be segmented a number of ways, such as by time of transaction (initial or recurring), geography, payment method etc.

Separating out the data like this helps to avoid over-generalising the state of your business, painting a better picture of where your churn is coming from.

There are four key ways we discussed in the webinar to improve payment acceptance:

  1. Payment methods Methods with a direct source of funds have better acceptance rates, such as digital wallets, direct debits or wire transfers. For example, we see 2X the amount of failed payments on card transactions compared to PayPal.

  2. Auto-update cards Ensuring that you don’t have expired cards on file will help reduce the failure rate. Make sure it’s super clear and easy for users to update their card information, and if you have access to expiry dates, get smart about prompting them when it’s time to change.

  3. Currencies Don’t blanket charge everyone in USD or a single currency. Payments made in local currencies are typically more successful, with some regions charting a 9% higher acceptance rate. If you showcase prices in local currencies, you’re also going to get better acquisition rates.

  4. Local acquirers This has the biggest impact on your acceptance rate. It will require you to set up relationships with local acquirers in your various regions, though at Paddle we can help you with that. In a test we ran earlier this year, routing our US transactions through a local acquirer provided a 3% boost in our acceptance rate for subscription renewals. That translates directly into 3% less revenue churn across the entire Paddle seller base in that region!

For us, taking this last step translated directly into 3% less MRR churn for our US-based sellers, and more than 30% less ARR churn over 12 months. Those are big numbers that are not to be sniffed at if you’re mapping out how to recover lost revenue with customer retention.

I mentioned last week what is most important:

“The message I want to hit home is: for the customers who aren’t actively trying to cancel, or maybe don’t have any cash flow issues, let’s try and keep hold of those as best we can.”

I can’t emphasize this enough.

Customer retention strategies to practice right now

So there you have it: our top tips to help you make the most of what you already have, rather than focus all your energies on gaining new customers.

Churn Reduction Strategies - 2x2 Quadrant

As a reminder, here are some achievable solutions that you can use to target churn reduction, based on the four quadrants diagram we saw earlier:

  • For pre-churn: Focus on onboarding and offers you can make in Week 1. Centre your messaging and early-stage content on activation.

  • For post-churn: Focus on cancellation offers. Talk to your customers and create a dialogue around their needs. Get the whole company involved, but most importantly be super clear about what’s going to happen and when.

  • For passive "involuntary" churn: Practice good payment acceptance strategies, so you never even reach the stage of payment recovery. 

TL;DR: While the current environment is tough, these are achievable practices that every SaaS company can implement. Minimising churn through customer retention strategies is the best way to recover your quarterly revenue.

Watch the full webinar recording with Harrison & Eric here.

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