How To Measure & Drive Customer Loyalty For Your SaaS Business
When it comes to running a SaaS business, having solid relationships with your customers is the key to sustainable growth.
The happier your customers are, the more likely they are to remain loyal to your SaaS product. And that also means more recurring revenue for your company.
However, customer loyalty doesn’t just happen overnight. It takes time and effort to build customer relationships.
That’s why, in this article, we are going to talk about customer loyalty in SaaS. We will discuss the specific benefits it brings to your business, and how to drive customer loyalty for your SaaS company.
Why Is Customer Loyalty Important For SaaS Businesses?
Customer loyalty is incredibly important for SaaS businesses. As we mentioned above, it is crucial to a SaaS company’s growth.
But let’s talk about specific benefits that customer loyalty can bring:
It Helps Customer Retention
The most direct (and the most obvious) effect that customer loyalty has on your SaaS business is that it helps you retain existing customers.
Loyal customers are more likely to stay subscribed to your SaaS product for a longer period of time. And the longer they stay, the more revenue you can generate from them, as you can measure with your customer lifetime value (CLV).
It Can Increase Your Revenue Per Customer
Not only do loyal customers stick with your SaaS solution for a longer time. They are also more likely to upgrade their subscription plans in the future or even buy your add-on products (if you have any).
For example, let’s say you have a customer relationship management (CRM) solution and are offering email automation and telephony solutions as add-on products. If your customer is loyal to your SaaS product, they are more likely to buy those add-on products from you when they need it.
Loyal Customers Bring In Referrals
Customer loyalty can even help you get new customers.
Loyal customers are more likely to recommend your product to their friends and colleagues. And that means more potential leads for your sales team.
It Improves Your Brand Reputation
Even if your existing customers don’t outright generate referrals for your SaaS business, they can still give your brand reputation a boost by talking about it online.
Loyal customers are more likely to leave positive reviews and testimonials about your SaaS product in the public sphere. That, in turn, will make your product more attractive to potential customers.
Customer Loyalty SaaS Metrics: How To Measure Customer Loyalty
Have you ever heard of the saying “You measure what you value and you value what you measure?”
In your context as a SaaS business owner, it means that if something is important to your company, then you should measure it with the right metrics.
But how do you even begin to measure loyalty? Here are some customer loyalty SaaS metrics you can use:
Customer Churn Rate
To get a quick glimpse of the overall loyalty among your customer base, you could simply measure how many of them are leaving (and how many are not).
That’s where the customer churn rate comes in.
You can calculate this metric by dividing the number of customers who left in a certain period of time by the total number of customers you had at the beginning of that period.
For example, if you had 200 customers at the beginning of the month and 10 left by the end of it, your customer churn rate for that period would be 5%. That means the remaining 95% might be loyal to your SaaS business.
Now, notice that I said, “might be.” That’s because the customer churn rate by itself doesn’t really tell much about customer loyalty.
Although it gives you an idea of how many if your customers MIGHT be loyal, you need other metrics to really drill down and see how loyal they are.
That brings us to the next metrics we need to discuss.
Customer Satisfaction (CSAT) Score
Your customer satisfaction or CSAT score can give you a better indication of customer loyalty.
You can get a general feel of your customers’ satisfaction by surveying them and asking them how satisfied they are with your product on a scale from one to five.
Each number on the scale would have the following corresponding meanings:
5 – Very Satisfied
4 – Somewhat Satisfied
3 – Neither Satisfied Nor Disappointed
2 – Somewhat Disappointed
1 – Very Disappointed
To calculate your overall CSAT score, count all the survey respondents who answered 4 or 5 (since they are the ones who are satisfied) then divide it by the total number of respondents you have.
For instance, if you have 100 customer satisfaction survey respondents and 70 of them answered 4 or 5, then your CSAT score would be at 70%.
This is a much better indication of customer loyalty compared to the customer churn rate since it lets your customer respond with a scale.
What’s more, since this metric involves a survey, that means you can also get more specific insights by asking follow-up questions.
For example, you could ask what they like about your SaaS product or what they want to be improved.
This can help you identify which particular aspects of your SaaS solution are contributing to (or are damaging customer satisfaction and loyalty).
Net Promoter Score (NPS)
The net promoter score (or NPS) is another survey-based metric that you can use to measure brand loyalty among your existing customer base.
It poses the question “On a scale of 1 to 10, how likely are you to recommend our SaaS product to a friend or colleague?”
Once your customers have responded, you need to group them into three, based on their answers:
- Promoters: Those who answered 9 or 10. These are loyal customers who are likely to become advocates for your product.
- Passives: Those who answered 7 or 8. These are customers who are satisfied with the product but may not be especially loyal (or likely to promote it). In fact, they may still switch to a competing SaaS provider if they see a better deal.
- Detractors: Those who answered 6 or lower. These customers are not happy with your SaaS product at all and could even damage your brand reputation by spreading negative word-of-mouth.
To calculate your NPS score, subtract the percentage of Detractors from the percentage of Promoters. This will give you a range between -100 and +100, which is your net promoter score.
For example, if 40% of respondents were promoters, 35% were passives and 25% were detractors then your NPS calculation would look something like this:
40 – 25 = 15
Like in the CSAT survey, you could also add follow-up questions in your NPS survey. This would help you identify which factors are fostering customer loyalty and advocacy, while also pinpointing what makes other users disappointed with your SaaS platform.
Customer Health Score
The customer health score is a holistic (although complex) metric that can help you measure the overall “health” or loyalty of a particular customer.
It considers everything that may affect customer health, such as customer support interactions, responses to customer surveys, and any interaction that may affect customer satisfaction.
To make it easier to understand, let’s take it step by step:
Step 1: Identify Customer Interactions That May Affect Customer Health
The first stage is to list all possible customer interactions that can influence how happy they are with your SaaS product and other services.
Again, that could be customer service, customer success, customer surveys, and so on.
Step 2: Assign A Weight Value to Each Interaction
Once you’ve identified the right customer interactions, assign a weighting value to them. This will give more importance to customer interactions that are more likely to have an impact on customer loyalty.
For example, a resolved customer support ticket could be worth 5 points. Or becoming a Promoter after an NPS survey could add 10 points to their overall customer health score.
What’s more, you could also assign a negative value to an interaction that negatively affects customer health. For instance, an unresolved support issue could have a weight value of -5.
Step 3: Multiply Weight Values To The Number Of Interactions
Now, each interaction you have identified at the beginning will have happened a certain number of times within a certain period of time.
Simply multiply the weight of each customer interaction by its frequency to calculate the health score for that interaction.
For example, if a customer had 3 resolved support issues at a weight of 5, then the calculation for health score for this particular interaction would be:
3 x 5 = 15
Step 4: Add All Customer Health Score Values Together
To get your overall customer health score, you need to add all the health scores from each individual customer interaction.
For example, let’s say a particular customer had the following interactions:
3 resolved support issues
1 unresolved issue
Gave an NPS rating of 9
This customer’s health score calculation would look something like this:
3 x 5 (resolved support issues) + (-5) (unresolved issue) + 10 (NPS rating of 9) = 20
Step 5: Create A Scale To Measure Customer Health
The thing about the customer health score is that there’s really no standard values on what scores are good and what aren’t.
So you need to make the standard yourself. You may want to compare the health scores of various customers. With the data you have, you can establish a ceiling and a floor for customer health, and then create a scale that describes your user.
You may even add some action steps that tell your team how they should treat users that fall under each scale.
Here’s an example of what a customer health score scale might look like:
Less than 0: “Critical Condition” — The customer is about to churn. They need urgent attention from the support team.
0 to 30: “At Risk” — The user is becoming less engaged and needs more customer success efforts to keep them on board.
31 to 50: “Stable” — The user is content with your SaaS product, but may not be fully satisfied. They need regular customer engagement to remain loyal.
51 to 75: “Engaged” — The user is engaged with your product and services. They may need customer success efforts to remain loyal.
Over 75: “Loyal Customer” — This customer is a raving fan and needs further nurturing to become an advocate of your SaaS product.
How To Drive Customer Loyalty For Your SaaS Business
Knowing how to measure loyalty among your customers and identifying what helps make them loyal is a great first step. After all, “Knowing is half the battle”, as the saying goes.
And the other half is doing something about it.
Now, every SaaS business is different. And based on your customers’ answers to your survey questions, there will be different factors that affect brand loyalty among them. The best strategy is always to focus on what would address your users’ concerns.
However, the overarching principle towards driving customer loyalty is always to provide excellent user experience and build solid relationships with them.
Below are some things that can help with that:
1) Develop An Excellent SaaS Product
Before anything else, the best way to make your customers happy is to deliver an excellent SaaS product.
Even if you provide the best customer support or customer success services out there, if your SaaS platform is anything short of excellent, customer loyalty will still take a hit.
First and foremost, it means your SaaS solution should address the primary pain point that your target customers have. It should also be easy to use, have an aesthetically pleasing design and layout, and have minimal bugs or technical issues during usage.
Still, every SaaS business owner should accept the fact that there is no such thing as a perfect SaaS product.
There will be times when your users will encounter issues and even bugs on your software. And when (not if) that happens, you need to have a team prepared to address it.
And that brings us to our next point.
2) Provide Responsive and Efficient Customer Support
Customer support is one of the most important aspects of your SaaS business when it comes to user experience.
Your customer support team should be well-trained and knowledgeable so that they can address issues as quickly and as effectively as possible.
Responsiveness is key here. If you don’t offer 24/7 support, your team should be able to respond to queries in less than 24 hours.
But more importantly, your customer service team should be empathetic and respectful when they’re talking to your customers — yes, even the angry ones who may not be the nicest to them.
Remember that you’re also trying to build good relationships with your customers here.
So a good way to look at it is that every support interaction is also an opportunity to turn frustrated customers into loyal customers.
3) Boost Customer Success Efforts
Customer success services go beyond customer support. It’s about helping your customers achieve their goals with the help of your SaaS product.
That way, your customers would see your SaaS solution as an essential tool for their success. And that would make them loyal to it.
A user’s relationship with your customer success team starts with the onboarding process. You should be able to make a good first impression by making this stage as smooth and enjoyable as possible.
What’s more, your customer success team needs to provide personalized help to your customers. The best way to do that is to track in-app customer behavior and provide targeted customer success services to each customer.
4) Create A Customer Loyalty Program
A customer loyalty program is a great way to reward customer loyalty and boost customer retention.
Simple incentives, such as gift cards or certificates for customers with high levels of app usage, can go a long way in making them feel appreciated and valued.
You can also offer a temporary free upgrade to a more advanced plan. Just a side note: this can also be a good way to upsell them to actually upgrade their plans when their free one ends.
What’s important here is that the reward should be something of real value to your customers, so they would appreciate it and would feel that you are celebrating their wins too.
5) Invest In Customer Loyalty Software
Depending on which tool you use, a customer loyalty platform can automate various customer loyalty tasks and even gamify it.
By gamifying customer loyalty and advocacy, you can make it fun and engaging for your users by collecting points from certain activities, such as bringing in referrals or leaving user reviews for your SaaS product.
Some loyalty software can even help you send rewards to your customers as they reach certain milestones or hit certain achievements.
What’s more, some customer loyalty software tools also allow you to track customer behavior, measure engagement rates, and even monitor the referrals that loyal customers bring in. This data can be highly valuable in terms of customer segmentation and customer analytics.
Some good examples of customer loyalty SaaS solutions include White Label Loyalty, Open Loyalty, Loopy Loyalty, and Preferred Patron.
6) Grow A SaaS Brand Community
When it comes to forming connections and building relationships in any niche, creating and growing a community has proven itself to be incredibly effective.
A brand community allows you to build customer relationships with your customer base, as well as increase customer engagement and customer loyalty.
Depending on your purpose and the size of your customer base, it can just be a simple Facebook group or a full-on Discord server with multiple conversation channels.
With an online community, you can start conversations by regularly posting content and asking for their thoughts. Don’t forget to consistently engage with them and let them feel that you value their opinions.
This would go a long way in driving customer loyalty and even advocacy for your SaaS product.
Final Thoughts: Customer Experience & Relationships Are The Key To Customer Loyalty
Wrapping up, I would like to reemphasize that the foundation of customer loyalty is an excellent customer experience and solid customer relationships.
No matter what strategy you do — even if you implement all the six best practices we discussed above — if you don’t focus on customer experience and relationships, it can only go so far.
So make sure you put your customer’s needs at the core of everything you do, and that customer success is a priority for your team.
With user experience as a cornerstone for customer loyalty, the rest of these strategies can come into play and help you retain more customers in the long term.
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