What’s A Good Retention Rate For B2B SaaS Businesses?
For a SaaS business, growth doesn’t just rest on customer acquisition. Keeping existing customers and improving their retention rate is what will ensure long-term success.
In fact, focusing on retaining customers is a more cost-effective way to increase profits than what’s spent on customer acquisition.
That’s because it costs more to acquire a new customer than it does to keep an existing one. What’s more, loyal customers tend to spend more on your SaaS product over time.
But the reality is that customer churn is inevitable. There will always be a certain percentage of your customers who choose to leave.
So what’s a good retention rate for B2B SaaS?
In this article, we will look into different ways you can measure customer retention, what factors affect retention, and what strategies you can use to improve customer retention for your B2B SaaS business.
3 Retention Metrics You Need To Track
To really understand the standard retention rate for your B2B SaaS business, you need to know which metrics you need to track.
Here are 3 key retention metrics every B2B SaaS business should monitor:
Customer Retention Rate
The most straightforward measure of customer retention is the customer retention rate, also sometimes called the logo retention rate. This metric measures what percentage of your customers remain active after a certain period of time.
To calculate it, take the number of customers you had at the beginning of the period and subtract the number of churned customers. Then divide the resulting figure by the number of customers you had at the beginning.
For example, let’s say you had 100 customers at the start of the month. By the end of the month, 10 have churned, leaving only 90. That would mean your customer retention rate is 90%.
Gross Revenue Retention (GRR) Rate
It is a great way to measure customer loyalty as customers who remain with your service for longer tend to spend more money in the long run.
The GRR rate considers the following losses in your MRR:
- Churn MRR: Recurring revenue lost due to churn.
- Contraction MRR: Recurring revenue lost due to customers downgrading their subscriptions.
To calculate it, take your MRR at the start of a period and subtract churn and contraction MRR. Then divide that figure by the original MRR figure.
For example, if you had $10,000 in recurring revenue at the beginning of the month and lost $500 through churn and contraction, then your GRR rate would be 95%.
Net Revenue Retention (NRR) Rate
Finally, net revenue retention (NRR) rate or net dollar retention rate measures what percentage of your MRR from existing customers you are left with.
It sounds a bit like the GRR rate, right?
But NRR rate also considers possible additions to your MRR, namely your expansion revenue, which is the additional recurring revenue you get from upsells and cross-sells.
To calculate your net revenue retention rate, take your MRR at the start of the period and subtract churn and contraction MRR. Then add any expansion revenue to that figure. Divide that total by your original MRR figure.
For example, if you had $10,000 in recurring revenue at the beginning of the month and lost $500 through churn and contraction, but also gained an additional $1,000 through upsells or cross-sells, then your NRR rate would be 105%.
Retention Rate Benchmarks By Target Market
The thing about retention rate is that there is no single benchmark for all SaaS businesses across the board. There are factors that can affect what the standard retention rate is for your business.
One of those factors is your target market.
Even the B2B market in itself is pretty diverse. Your customers may be small to medium-sized businesses (SMBs) or you may also be catering to larger enterprises.
The way SMBs and larger enterprises use your service may be very different. As a result, their satisfaction rates and retention rates can also vary quite significantly.
Let’s take a look at how retention rates are different for each type of B2B customer.
SMB Customers: Lower Standards On Retention Rates
In general, small businesses can be quite unpredictable and tend to churn more quickly than larger enterprises.
While they are easier to acquire as customers, they may also have limited budgets and/or fast-changing needs and priorities.
That’s why you would have the following benchmarks for your retention rates if you’re targeting SMBs:
Enterprise: Higher Average Retention Rates
Compared to SMBs, enterprise customers have a longer sales cycle and may take slightly longer to sign up. But once they are on board, they tend to sign up for high-value, long-term contracts that last for several years.
What’s more, enterprise SaaS solutions usually have more comprehensive and personalized onboarding and customer success processes. These strategies can help maintain customer loyalty and longer-term engagements.
If you’re also catering to enterprises, you might want to aim for these higher retention rates:
- Customer retention rate: 90%
- Net revenue retention rate: 120%
- Gross revenue retention rate: 90% (or 95% for high-ACV contracts)
Retention Rate Benchmarks By Company Size (in ARR)
The size of your company can also have an effect on your retention rate.
As you grow, so will the complexity and sophistication of your product offerings. This could lead to a more complex onboarding process and higher customer retention rates.
However, larger players tend to have more resources at their disposal that they can invest in customer success. That helps them develop more robust onboarding processes and customer support that can contribute to better retention rates.
Here are some retention rate benchmarks at different annual recurring revenue (ARR) levels for your SaaS company:
Retention Rate Benchmarks By SaaS Type (Horizontal or Vertical)
The type of software you’re offering can also determine what your retention rate should look like.
In this context, there are two key types of SaaS products that vary significantly: horizontal SaaS and vertical SaaS.
Horizontal SaaS: Slightly Lower Retention
Horizontal SaaS solutions are general-purpose applications that serve a wide customer base made up of different industries.
For example, a customer service platform like Zendesk can be used by any company, regardless of what industry they are in.
This type of SaaS solution often has lower customer acquisition costs, but they may face higher levels of churn due to their broad appeal and lack of niche-specific features and customization.
Benchmarks for retention rates for horizontal SaaS products are as follows:
- Net revenue retention rate: 103%
- Gross revenue retention rate: 91%
Vertical SaaS: Generally Higher Retention
On the other hand, vertical SaaS solutions typically target narrower audiences and offer more specialized features tailored to specific industries. They are usually built for a specific industry, such as healthcare or finance.
As a result, customer acquisition costs for these types of services tend to be higher, but so do retention rates.
Vertical SaaS companies may find themselves with retention rates close to the following standard figures:
- Net revenue retention rate: 103%
- Gross revenue retention rate: 93%
How To Improve Your Retention Rates
No matter what type of SaaS product you offer, there are several steps you can take to increase your customer retention rates. Here are some strategies that can help.
1) Provide Top-Notch Customer Support
Providing excellent customer service is essential in retaining customers. There are a lot of factors that can contribute to what makes a good customer support experience.
Here are a few tips on improving your customer support:
Build a comprehensive knowledge base: Having a comprehensive knowledge base for customers to refer to can help them find what they need quickly and reduce their reliance on support tickets.
Your knowledge base has to be easy to navigate. If customers can’t find what they need quickly, they’ll be less likely to stick around.
If you can, mix it up with some tutorial videos too. This can help customers get up to speed with your product faster and create a more enjoyable experience.
Offer multi-channel support: Offer multiple channels for customer support such as email, phone, or live chat. This way, customers have the flexibility to reach out on their preferred channel and get help when they need it.
If you’re using live chat as a customer support channel, make sure that it is accessible within the SaaS platform. This way, customers can get quick help without having to leave the platform and go looking for it.
Make sure your customer support team responds quickly: Your customer service team should respond quickly to support requests. Make sure they are well-trained and have access to the right tools so that they can handle any issues immediately.
It’s okay if you can’t provide 24/7 customer support, but you should at least make sure that any requests are addressed in a timely manner.
2) Have A Solid Customer Success Strategy
Customer success is the cornerstone of any successful SaaS business. It’s not enough to just get customers onboarded and leave them to figure out what to do next.
You need to have a customer success strategy that helps customers understand how your product can help them achieve their goals, as well as what steps they should take next in order to make the most out of it.
Here are some tips on improving your customer success strategy:
Develop a customer onboarding process: An onboarding process is essential to make sure that customers get up and running with your product quickly. This should include detailed instructions, tutorials, and other resources that can help customers get the most out of your product.
Provide additional training and tutorials: If you have more complicated features, providing additional training and tutorials can be very helpful. Make sure to provide clear, step-by-step instructions that will help customers understand what they need to do.
Keep track of customer usage: It’s important to keep track of how customers are using your product so you can spot any potential issues early on. If there is an issue, take the time to reach out and provide assistance as quickly as possible.
Customer support may be reactive in that you’re waiting for your customers to reach out to you for help. But customer success can be more proactive, where you reach out to customers and provide help before they even realize that they need it.
This can go a long way in keeping customers happy and minimizing churn.
3) Keep Track Of Customer Satisfaction Metrics
Tracking customer satisfaction metrics is the best way to measure and understand what customers think of your product.
This allows you to detect any issue before it becomes a big problem, as well as identify what areas need improvement.
Here are a few essential customer satisfaction metrics you need to monitor:
Customer satisfaction (CSAT) score: CSAT score is a measure of how satisfied your customers are.
You measure it by sending a survey to your customers asking them to rate their experience with your product on a scale of 1 to 5 — 1 being “Extremely Disappointed” and 5 being “Extremely Satisfied.”
You would then add the number of respondents who answered 4 or 5 and take the percentage of that number over the total respondents.
Net Promoter Score (NPS): NPS is a measure of how likely your customers are to recommend your product to others
You measure it by sending a survey asking customers whether they would recommend your product on a scale from 1 to 10, with 1 being “Not at all Likely” and 10 being “Extremely Likely.”
You would group respondents into three:
- Promoters: Answered 9 to 10.
- Passives: Answered 7 to 8.
- Detractors: Answered 1 to 6.
Your NPS score is then calculated as the percentage of promoters minus the percentage of detractors.
Customer Engagement Score (CES): CES is a measure of how engaged your customers are with your product.
There are quite a few key steps in measuring your CES.
First, you need to identify customer engagement events, which are customer behavior or actions that show that they are engaging with your SaaS product.
For example, if you have a project management solution, customer engagement events could include creating a new project, adding a task to an existing project, or commenting on a task.
You would then assign an importance value to each of those events.
For example, creating a project would be given a higher importance value than adding a task to an existing project.
You can then calculate each event’s customer engagement score by multiplying their importance value by the number of times that event happened within a certain period of time.
Your overall CES would be the sum of all the event scores.
By tracking these metrics, you can gain valuable insights into what’s working and what needs improvement. This will help you make data-driven decisions on how to improve customer experience and retention
4) Segment Customers Based On Likelihood Of Churn
The customer satisfaction metrics we discussed can help you identify which customers are more likely to churn. That can be your first step towards preventing them from leaving.
Another key step in preventing customer churn is to segment customers based on their risk of churn. This would enable you to create targeted customer success campaigns and actions that are tailored to each segment.
For example, you could create the following segments and campaigns for these types of customers:
Safe customers: These customers are happy and engaged with your product. So, your usual customer success services may suffice to keep them happy.
At-risk customers: These customers are not as active or don’t interact with the product in a meaningful way. You would want to reach out to them proactively and provide support if needed.
You may also want to send them a retargeting drip campaign or any similar effort that could help re-engage them with the SaaS product.
Lost cause customers: These customers have already expressed dissatisfaction and are likely to churn soon. Instead of wasting time trying to save them, you can try to understand what went wrong so that you can prevent similar losses in the future.
By segmenting customers based on their risk of churn, you will be able to create much more effective customer success campaigns tailored specifically to each customer group.
5) Build A Brand Community
Building a brand community is another great way to increase customer engagement and reduce churn.
The primary goal of this tactic is to create an interactive platform where your users can engage with each other, share their experience, provide customer feedback, ask questions, and so on.
That way, they will feel more connected to the product and your brand which will further boost customer loyalty.
You could start by creating a Facebook group or a Discord server. This would be the perfect place for customers to communicate with each other and discuss what’s working and what’s not.
Here are some ways you can build a brand community and maximize customer loyalty and advocacy:
Involve community members in brand decisions: Ask community members what they think about product updates, upcoming features and what they’d like to see. This will make them feel heard and valued which is a key factor in customer loyalty.
What’s more, it will also give them a sense of ownership and responsibility. This will further motivate them to help spread the word about your product.
Have a social responsibility campaign: Invite members of your brand community to participate in a social responsibility campaign. This could be anything from expressing support for an anti-discrimination campaign to advocating for renewable energy yourself.
This will show them that you care about more than just making money and that you want to create something good and meaningful together with your customers. That’s what builds strong customer loyalty.
Reward members for their efforts: If customers share your content, respond to questions or provide customer feedback, offer rewards like discounts and freebies. This will keep people engaged and motivated to stay active in the community.
6) Consistently Add New Features & Updates
If you want to improve customer retention for your B2B SaaS business, it’s important to ensure that the product is constantly evolving and improving.
Adding new features and updates can help keep things exciting and show customers that they are getting what they paid for.
To make sure the development team is consistently working on adding new features or updates, you should create a roadmap of what needs to be done in what order. That way, everyone will know what their priorities are at any given time.
By continuously driving innovation, not only can you engage existing customers but also attract new ones who may find your product appealing due to its modernity.
7) Upsell Based On Customer Behavior
One of the best ways to improve customer retention for B2B SaaS businesses is to upsell based on your customer’s usage of your SaaS solution.
When customers use a certain feature or reach a milestone, you can offer them the chance to upgrade to a higher plan or purchase additional features at a discounted rate.
For example, if an existing customer is nearly reaching their plan’s limits on storage, you could offer them an upgrade to a larger plan at a discounted rate.
This will not only help you increase revenue and your net revenue retention. But it will also encourage customers to stick around and explore what else your product has to offer.
Plus, it gives them an incentive to keep using what they already have in order to unlock more benefits.
8) Build A Smooth Customer Offboarding Process
Sometimes, churn can’t be helped. But that doesn’t mean you can’t turn what could be a negative experience into a positive one.
Creating a smooth offboarding process for customers who decide to leave is useful for improving customer retention by knowing how you can do better next time.
Here are a few things you can do with your offboarding process:
Have an exit survey: Before your customers get to cancel their subscription, have them answer an exit survey to get their feedback on what could be done better.
Ask them the top three reasons why they have decided to leave and what could have been done better.
Make sure to gather all the answers from all of the customers who decide to leave. Then rank which answers appear most frequently. That way, you can get a better idea of what urgently needs to be improved going forward.
Give a partial refund for early cancellation: One way to show your customers that you value their business is to offer at least a partial refund or discount for those who cancel early.
This will ensure that even if the customer isn’t staying with you, they still feel appreciated and valued.
Send follow up emails: After a customer has left, it’s important to stay in touch. Send them an email every so often letting them know what new features have been added or what updates have been made.
That way, when they need your SaaS product again in the future, they will be more likely to come back.
Final Thoughts About Retention Rates For B2B SaaS Businesses
There are a lot of factors that can affect retention rates for a B2B SaaS business. But understanding what those factors are and how to address them can help you improve customer retention and maximize your revenue.
Improving customer retention for B2B SaaS businesses requires a multifaceted approach.
You must create a great user experience, provide value beyond what customers expect, and keep innovating to stay ahead of the competition.
Additionally, providing rewards for engagement, upselling based on usage and creating an offboarding process will all help increase customer loyalty and boost retention rates.
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