What is dunning, and why is it important for SaaS customer retention? In a recurring subscription-based business model, failed payments and transactions create the risk of customer churn and lost revenue. Something as simple as an expired credit card can disrupt the payment process and cost you a customer.

SaaS dunning is a strategy that enables you to communicate with customers proactively to prevent recurring billing disruptions. Here, we’ll cover the basics you need to know about the dunning process in a SaaS model, including dunning management best practices like using payment recovery software to automate your credit card dunning process.

What is dunning management?

Dunning is the practice of systematically communicating with customers to collect payments on accounts receivable debts. The term comes from the verb “dun,” which means persistently demanding payments. 

Historically, the dunning process involves making a series of escalating attempts to collect payments over a defined dunning period using dunning emails and notices. These usually start with friendly payment reminders and gradually progress to sending a more assertive demand for payment (using a format known as a dunning letter or dunning notice), threatening legal action, and, when necessary, filing a formal complaint in court to enforce collection action. 

In a SaaS context, dunning management systems help streamline the collection process for improved dunning revenue recovery, using automated reminders to encourage customers to catch up on late payments before their subscription lapses. The dunning process in SaaS takes a less legalistic, more constructive approach.

How dunning management benefits SaaS businesses

For SaaS companies, implementing an automated dunning management system provides numerous benefits that can lead to higher customer retention rates, increased revenue, and improved customer relationships.

Here are just a few benefits of SaaS dunning management:

• Reduces involuntary churn: Automated payment retry logic and dunning reminders allow customers to update expired cards and catch up on late payments before involuntary churn occurs. This prevents revenue loss from billing issues.
• Improves customer retention: Friendly, personalized payment reminders keep more customers engaged and aware of renewal dates, leading to higher voluntary renewals, improved customer satisfaction, and increased retention rates.
• Maintains customer relationships: Constructive dunning communication avoids a harsh tone, strengthening ongoing customer relationships.
• Increases on-time payments: Payment reminders encourage customers to keep subscriptions current, improving cash flow with more timely payments.
• Requires less effort: Automation handles most dunning communication, freeing staff for higher-value customer interactions.
• Provides insights: Dunning data reveals the causes behind late payments, allowing process improvements that further reduce involuntary churn.

With automated dunning systems in place, SaaS businesses can dramatically reduce involuntary churn while keeping more customers happy and payments flowing. This leads to better customer lifetime value, higher retention, and ultimately greater profitability from recurring revenue streams.

What does the dunning process involve?

Dunning management strategies typically employ several methods and tools to avoid late payments and encourage the continuity of recurring subscriptions. A few common tactics for SaaS dunning include:

• Emailing customers advance notifications of pending invoices to prompt timely payments.
• Inviting customers to update their payment information before subscriptions expire to avoid payment fails from expired or insufficient funds.
• Automatically retrying failed transactions after a set interval to allow customers to rectify declined cards or non-payment issues.
• Sending customers reminders to follow up on overdue invoices and overdue payments resulting from bad debt or other payment issues.
• Using a credit card updater service to automatically update expired card data, minimizing failed transactions.

These methods provide multiple opportunities for customers to resolve declined payments and non-payment of overdue invoices. By consistently following up on failed transactions, SaaS companies can significantly reduce involuntary churn and revenue loss over time.

Dunning best practices

Following these best practices can increase the efficiency of your dunning management strategy. Here are eight of the most important best practices to follow when executing your SaaS dunning strategy.

Prevent payment failures before they happen

The foundation of a successful dunning strategy is taking steps to prevent accounts from going past due in the first place. Maxio’s interface provides out-of-the-box settings that let you take two important steps to keep card payments current and avoid declines:

1. Card expiration email reminders prompt customers to update expired payment information before the next billing cycle. This prevents failed transactions from outdated or invalid payment methods.
2. Payment reminder emails go out before each billing date so customers can update card information in case of issues. These payment reminders reduce the likelihood of non-payment and involuntary churn.

By keeping payment information current and sending proactive reminders, SaaS companies can avoid many of the failed payments and past due accounts that would otherwise end up in dunning flows. Fewer declines upfront mean less need for dunning follow-up on the back end.

Monitor any past-due accounts

Proactively monitoring accounts with overdue invoices and overdue payments allows you to focus dunning efforts on customers needing payment prompts. Maxio makes it easy to track which subscriptions have gone past due. You can filter by product, version, status, and other keywords to quickly see accounts with invoices past the due date. 

This helps prioritize outreach to customers with the most substantial or long-overdue payments, minimizing involuntary churn from unpaid subscriptions. Staying on top of overdue payments is key for successful dunning management and maximizing the collection of revenue from existing customer accounts.

Strategize dunning policies

For cases where prevention strategies fail, you can plan what happens when a customer’s account has overdue payments. Develop policies within your dunning management system that outline the following:

• How long you’ll keep retrying cards before considering account cancellation
• How many dunning reminders you will send during the collection process
• What tone and messaging to use in email templates to balance customer satisfaction with recovering missed revenue

Your answers to these questions will help define standard operating procedures for your dunning workflows. This includes developing customized email templates for communicating with past-due customers in a way that encourages on-time payments while maintaining positive experiences. Defining these policies upfront allows automation to handle most first-level dunning communication so your team can focus on high-value customer account outreach.

Utilize multiple communication methods

Don’t rely solely on email notifications for dunning outreach. Expanding to additional channels provides more opportunities to resolve late payments.

Some potential options include:

• SMS reminders when payments become past due, ensuring the requests don’t get lost in an overflowing email inbox
• Personal phone calls to delinquent higher-value customers, adding a human touch to understand issues and encourage updated payment
• Mailed letters or postcards to capture customers less likely to monitor digital messages
• Self-service customer portal highlighting overdue invoices, for a more passive communication channel
• Chatbots or interactive voice response providing automated payment prompts if agents aren’t available

While email dunning templates remain the easiest to scale, exploring other outreach methods can boost response rates. The specific channel mix will depend on your customer demographic, but offering multiple options caters to different communication preferences. This maximizes the likelihood that dunning requests are received and acted upon.

Consider your communication frequency

How frequently you send dunning reminders should align with the number of days before potentially canceling an account for non-payment. As a general best practice, aim to send at least two email notifications spaced apart as follow-up outreach before considering subscription cancellation.

For example, if your dunning management policy closes accounts after 60 days past due, you could send an initial email at 15 days overdue, another email at 30 days as a reminder, and a final notice at 45 days before closing the account. This allows sufficient follow-up attempts while still limiting excessive communication.

The ideal email frequency and total number sent will vary based on your payment terms, dunning timeline, and customer base.

Practice empathy in your messaging

Remember, your clients are people. Maintaining positive customer relationships and customer satisfaction should be prioritized, even during dunning communication. A personal phone call can be more effective than an email for delicately clearing up any payment issues or miscommunications. It adds a human touch to show you care about the customer as an individual, not just their payments.

Empathetic, constructive messaging helps preserve rapport while still addressing overdue invoices. Leading with empathy opens the door to finding cooperative solutions, rather than putting customers on the defensive. Combine compassionate outreach with flexibility in addressing individual customer circumstances, and your dunning process can strengthen loyalty and retention over the long term.

Provide opportunities for reactivation

Give customers opportunities to reactivate canceled subscriptions by updating billing information after payment fails. With Maxio, if a customer provides new credit card details before the final account cancellation, the system can immediately charge any overdue payments. This reactivates the subscription so it returns to an active state vs. proceeding to churn.

Allowing customers to rectify declined cards or expired billing data even after multiple payment fails gives one last chance to resume revenue streams. This reactivation potential further reduces involuntary churn that would otherwise result in permanent revenue loss. It’s a simple setting that pays dividends over time as more customers take advantage of the option.

Offer payment options

Discuss alternative payment plans for customers who can’t catch up on late payments in one lump sum. This may involve splitting the outstanding balance across multiple card payments over an agreed timeframe. Or you could suggest switching payment methods to bank transfers or checks if credit/debit cards remain problematic.

Having open conversations about payment information needed to resolve overdue invoices gives customers facing temporary financial constraints a path to restore their account standing. This protects ongoing revenue streams that may otherwise succumb to involuntary churn. Offering flexible repayment options tailored to individual circumstances shows good faith and understanding, cementing customer loyalty beyond just their immediate payment ability.

Provide clear paths for resolving disputes

Discuss instances where customers might intentionally not pay due to unhappiness over platform functionality, the customer experience, or suspected payment issues. Have clear dispute resolution policies and procedures in place that are easy for both customers and staff to understand. These should outline paths to settling problems like incorrectly charged invoices, requests for refunds, or demands to fix software bugs before payments resume.

Well-defined dispute processes give customers facing legitimate product or billing problems an organized way to voice grievances. This prevents loss of goodwill and potential revenue churn from customers who simply lack a constructive outlet to drive resolution. Make sure dispute functionality is easy to find within your software or customer portals. The simpler you make it for customers to outline problems needing remedy, the faster your teams can diagnose issues and retain accounts at risk of defection.

Use AI and automation to optimize your dunning process

Artificial intelligence capabilities within dunning management systems can optimize the collection process. Billing software with integrated AI analyzes historical payment data to identify customer accounts more at risk of churn. Machine learning also uncovers the most effective communication methods and timing for prompt responses.

Automation further increases efficiency by handling the bulk of first-line dunning actions based on system triggers. This includes sending payment reminder emails, retrying failed transactions, and notifying staff of accounts past due needing follow-up. Automated workflows execute defined dunning processes without ongoing human input.

Together, AI insights and automation remove much of the manual effort around dunning. This leaves staff free to focus on high-value activities like customer conversations to preserve relationships and reverse involuntary churn. Advanced dunning management systems make the process easy by continually self-optimizing.

Train staff in dunning best practices

A successful dunning strategy relies on reps understanding how to effectively communicate with past due customers. Provide training to ensure staff have the skills to:

• Proactively prevent late payments by confirming correct billing details at signup and offering easy account updates
• Speak with empathy when reaching out about overdue invoices, avoiding undue pressure
• Offer customized payment plans tailored to the customer’s situation
• Resolve sources of disputes like platform problems or unfair billing
• Escalate complex customer issues to management to protect relationships

With the right approach, dunning calls can strengthen bonds through compassion and flexibility, not just demand missed payments. Equip reps to have constructive conversations focused on helping customers get back on track.

Be sure to set clear guidelines around your tone, flexibility in repayment options, dispute resolution procedures, and escalation protocols with customers. Consistent training ensures these standards are met during customer interactions.

Use cases for dunning management

Once you have a handle on how to set up dunning management in your business, you’ll then need to take a hard look at the methods you’re using. Here are a few of the dunning use cases we recommend if you’re not sure where to start.

Card expiration emails

You can enable card expiration email notifications so that your customers are notified on the 1st, 15th, and 23rd days of the month before expiration.

You can also see a dunning report with a list of subscriptions with expired cards if you wish to manually contact them individually. You can generate a customized URL to link your customers to a card payments update page, making it easy for them to enter new credit card details.

Please note that as a security measure, clicking on the Self-service Page link will log you out of the Maxio user interface. You can avoid this by right-clicking on the link and opening it in a different browser.

Payment reminder emails

You can also enable payment reminder email notifications so that customers are notified three days before payments are due. This enables them to update credit card details before a billing attempt is made or a potential payment fails due to outdated billing info.

Payment reminder phone calls

Another effective strategy for dunning management is personal payment reminder phone calls. By reaching out directly by phone—instead of only relying on email or text follow-ups—you can create a more meaningful dialogue around late customer payments.

Or, if you’re outsourcing your customer support, call center representatives can probe to better understand any specific payment issues the customer is facing that may have prevented on-time payments. When executed constructively, high-touch calls like these have successfully secured missed customer payments as part of overall dunning management and collections processes. Just be sure your representatives approach these calls empathetically, helping get your accounts back on track vs. harassing customers for failed payments.

Late account SMS messages

Another strategy to incorporate within dunning management workflows is overdue payment SMS reminders. Automated text messages can provide friendly yet urgent prompts about late or missing payments on overdue invoices when customers are past their payment terms.

SMS dunning also has key advantages over email alone when trying to capture a customer’s attention and spur them to action. This is because text messages often get higher open and response rates thanks to real-time delivery to the customers’ mobile devices.

Automate your processes with Maxio dunning management software

SaaS dunning provides one of the easiest ways to increase revenue retention and reduce overdue invoices by using strategic communication with customers to reduce churn. To gain the most benefit from dunning, you should combine dunning management best practices, such as automated credit card updaters and email reminders, with a dunning management system or billing system designed to support them. Maxio’s subscription management and billing software provides all the built-in dunning software tools you need for efficient dunning automation, following the best practices recommended here. Talk to our sales team about your needs.

If you can understand your SaaS churn rate, you’ll have everything you need to prevent revenue leakage in your SaaS company. But while a company’s customer churn rate is a relatively straightforward metric, there is a lot of important context surrounding it that you should work to understand.

How does churn rate affect your valuation? How do you calculate your churn rate? What customer activities could act as leading indicators for churn?

In this article, we’ll answer all of these questions and more. Here’s what you need to know about your SaaS churn rate.

What is Churn Rate?

So, what exactly do we mean when we refer to this churn thing? Put simply, churn is tracking how many customers you’re losing over a certain period of time. It’s a key metric that any business with repeat customers needs to monitor.

The first step to calculating churn rate calculation is defining the time frame for your analysis, whether monthly, quarterly, or annually. This could be from the start of the month to the beginning of the next month or a quarterly period from January to March. Being consistent in your chosen period will allow you to benchmark and track any churn trends over time.

Next, you’ll want to determine your MRR (monthly recurring revenue) at the start of the period. This acts as your denominator. Then count up any lost revenue from customers who canceled their subscriptions within that time frame. That canceled MRR total becomes your numerator.

To calculate the actual churn rate, divide your numerator (MRR lost) by your denominator (starting MRR) and multiply by 100 to get a percentage. This churn rate formula provides a clear metric for the portion of your customer base that was not retained for that specific period.

Keeping close tabs on churn rates through consistent calculation and churn analysis will allow you to forecast growth and spot opportunities to improve your business model. With experience, given your particular industry and customer base, you’ll establish benchmarks for what constitutes a low versus high churn rate. This data-driven approach to churn helps reduce revenue lost and supports a lower churn rate in the long term.

For instance, say you had 1,000 subscribers at the beginning of the month, but then 50 of them vanished during this given period of time. To find the monthly churn rate, you’d take 50 and divide it by the original 1,000. That would give you a 5% churn rate. This is about an average churn rate, but ideally, a good churn rate would hover around 1-2%.

A few notes — churn is always a percentage, so higher is worse. It doesn’t count one-time buyers; folks are just supposed to stick around. And the period has to be the same each time to spot trends.

By grasping this definition, subscription businesses can tally up how well they hold onto clients in the long run. In the next section, we’ll dive into why keeping a close eye on churn is so crucial to future success.

Why Churn Rate Matters 

There are several compelling reasons why churn rate is an important metric for businesses to track closely. Higher churn means losing valuable recurring revenue streams when customers cancel subscriptions or downgrade their subscription tiers. It also equates to losing repeat customers and future purchases, directly impacting top-line growth and profits. 

Retaining existing customers is also significantly less expensive than constantly needing to acquire new ones — specifically, in the SaaS industry, it can cost 4-5 times more to acquire new customers rather than retaining current ones. High churn can also damage a brand’s reputation by influencing potential new customers with negative reviews about product experiences online. For all of these reasons, SaaS businesses should prioritize monitoring and reducing churn over funneling their dollars into customer acquisition.

The 3 Main Causes of Churn

There are countless reasons for churn — and sometimes, it has nothing to do with your startup, offer, or service quality. That being said, there are several causes of customer churn that you can work to prevent.

Here are the three main causes of churn and what you can do to stop them.

1. Poor Customer Experience

Providing an excellent customer experience should be a top priority for SaaS companies, but poor experiences are one of the leading drivers of churn. Customers will quickly cancel a subscription or switch to a competitor if they are frustrated with usability issues, slow response times, or lack of support.

Some common pain points that cause customer churn related to poor customer experience include confusing interfaces that are difficult to navigate, too many clicks to complete basic tasks, slow load times that cause frustration, and an inability to find answers to common questions through self-service easily. A lack of available support channels or long wait times to speak with an agent also significantly damages brand perception.

2. Pricing and Promotions 

Pricing is a core lever that, if not handled carefully, can drive customers away. Upfront transparency around pricing plans is key to setting expectations and avoiding churn from unexpected increases later. While temporary promotions may attract trial users, they also present risks. Customers signing up for heavily discounted introductory rates may feel misled if bills jump substantially after the trial period ends.

It’s important to communicate the ongoing pricing clearly once the promotion expires. Loyal, long-term users often pay fair rates for ongoing value. However, relying too heavily on short-term discounts that aren’t sustainable long-term can undermine retention. Promotions should balance acquisition and retention goals.

Testing different pricing tiers and add-on options can provide insights into customers’ willingness to pay for various plan levels and features. This data can then guide informed pricing strategies. Even if increases are necessary, advance notice and a demonstrated ongoing commitment to delivering value at a fair price can help curb churn.

Transparency must go both ways, too – listening to understand customer perceptions of value and affordability helps ensure prices feel appropriately set. With the right testing and communication approaches, pricing need not be a significant driver of unwanted customer losses.

3. Competition in the Marketplace

Competition in the SaaS marketplace can significantly impact customer churn, as businesses must continually deliver the best experience to maintain their user base.

 Losing customers to competitors offering superior alternatives presents a major retention challenge. SaaS companies can experience churn when other options emerge that better meet customer needs through more desirable features, improved performance, lower pricing, or stronger reputations. 

To curb competitive churn, SaaS leaders must closely track competitors’ positioning, ensure offerings stay innovative and aligned with trends, and proactively address issues driving customers to other providers. Through self-evaluation, commitment to excellence, and truly understanding evolving user demands, businesses can retain their competitive edge and prevent unwanted customer losses to more agile rivals.

4 Strategies to Reduce Churn

Losing customers is easy. Keeping them around is much more difficult (but it’s not impossible). You can build a ‘culture of retention’ across your organization by equipping your Sales and Customer Success teams with the right retention and marketing strategies to reduce churn risks. 

Here are the strategies we recommend implementing to keep your users signed up and sticking around.

1. Gather Customer Feedback

No business knows its customers better than the customers themselves. Making it easy for clients to provide direct input about their experiences is a valuable way to gain insights into what’s working well and where improvements could be made. 

Some effective methods for gathering this kind of feedback include creating surveys, focus groups, and user communities. Periodic online surveys sent to active customers and former clients who stopped using the service can shed light on their motivations. Similarly, in-person or virtual focus groups can allow your team to dive deeper into select issues with a small set of clients.

A perfect example of this is Salesforce’s “Trailblazer Community.” This platform enables users to connect, learn, and collaborate on everything related to Sales and marketing. Members can even join groups, participate in events, and help each other thrive in using Salesforce products:

(Source: https://trailhead.salesforce.com/trailblazer-community/feed)

2. Improve Your Onboarding Process  

Building a seamless onboarding experience is crucial for SaaS companies that want to maximize customer retention and reduce churn. The first impressions made during this initial onboarding stage can strongly shape a customer’s longer-term engagement and likelihood of continuing their subscription.

But what exactly does an effective onboarding experience look like? 

For starters, the best onboarding experiences walk users through the entire process step-by-step. This involves carefully walking customers through account setup, interactive feature tutorials, and reducing their overall time-to-value when using your SaaS.

It’s also worth noting that you don’t always need a dedicated account manager to take new users through the onboarding process. Instead, offering multiple onboarding support options can ensure all your customers’ needs are met. This could include offering short instructional videos to supplement any written documentation you have or building out an interactive tutorial that customers can work through at their own pace.

3. Personalize the Customer Experience

Collecting and analyzing information on how and where your customers spend their money across your organization is key to personalizing their experience with your SaaS. With this in mind, business leaders can gain valuable insights by tracking various metrics and KPIs across customer cohorts defined by attributes like industry, company size, role, region, or other demographic factors.

For example, monitoring metrics such as monthly recurring revenue, expansion rates, contraction rates, and churn over time helps identify cohorts whose needs may not be met. This provides direction on where to focus efforts to boost retention. For example, analytics may show revenue trends down for a certain customer base despite the approaching renewal time.

With a SaaS metrics and analytics platform like Maxio, you can take advantage of drill-down reporting features to see exactly how revenue is trending across your organization:

(Source: https://www.maxio.com/saas-metrics)

Equipped with this granular customer spending information, SaaS companies can update their product roadmaps to deliver solutions that better serve the needs of at-risk customer cohorts. Similarly, you can offer custom features, pricing plans, and onboarding processes specifically designed to address your customers’ pain points and reduce their likelihood of churn.

4. Test and Measure New Customer Retention Strategies

Similar to personalization, continually testing and optimizing approaches to product development, customer support, and account management are all key to reducing churn over the long run. 

To do this, consider implementing A/B testing of your pricing and billing methods, onboarding, or renewal workflows with separate customer cohorts. Then, carefully track metrics like your conversion rates, activation times, and user retention over a monthly or quarterly basis to see how these tests impact your business’s overall health. For example, offering personalized discounts significantly increases renewal conversions versus sending generic reminders a week or a month before they occur.

Regardless of the tests you run, maintaining this ‘testing mindset’ ensures that you’ll continue to create a better user experience for your customers and improve customer lifetime values across your customer base.

The Importance of Predicting At-Risk Customers 

To best support your customers throughout their lifecycle, it’s important to identify users who are showing signs of potential churn. Some churn-risk indicators to monitor include usage patterns, engagement signals, and financial behaviors.

For instance, tracking customer logins and product usage over time can reveal declining activity levels that suggest they are no longer getting value out of your product or that your product is just a nice-to-have in their tech stack. A sudden drop-off in core product usage could also indicate that a customer is exploring alternatives to your solution (AKA your competitors). It’s also wise to consider certain spending behaviors like unpaid invoices or stalled subscription renewals. Missing a payment may not guarantee that a customer will churn, but it’s a warning sign that should prompt your customer success managers to step in and investigate.

Most importantly, intervening is key. By monitoring these types of at-risk indicators across your customer base, you can proactively contact potentially churning customers to ensure their needs are met before they switch providers.

Measuring Retention Programs: Why You Should Do It and How

While taking proactive steps to retain at-risk customers is important, measuring the ROI of your anti-churn initiatives is equally crucial. Without tracking these results, you won’t know which programs are truly helping to curb your customer losses.

Calculating the expense of running specific retention programs against the number of customers kept can help you gauge their return. For example, if a targeted email campaign costs $5,000 and saves five customers from churning, the cost per the total number of customers that were retained is $1,000 — this could be a worthwhile ROI if those current customers renew for multiple years.

Similarly, you should track your overall monthly or annual churn rates before and after implementing these retention tactics and see what kind of results you’re getting. Did your customer attrition rate decrease from 5% to 2% after launching a new success manager role? That 3% reduction could translate to significant recurring revenue retention depending on the size of your customer base and their average contract value (ACV).

Remember that qualitative metrics also provide valuable insights. Survey retained at-risk customers to determine which interventions helped them most — a price adjustment, new features, or personalized support.

Ultimately, it will take the combined efforts of your entire go-to-market departments (Sales, Marketing, Customer Success, Growth) to ensure your retention programs are a success — but by continuously tracking hard ROI metrics and customer satisfaction indicators, you start to build an effective system to tackle any customer churn-risks that occur across your user base.

Don’t Go Overboard Trying to Eliminate Churn

One last thing before we wrap this up — if you’re too narrowly focused on reducing churn over the next month or quarter, you could hurt your business over the long term. Of course, keeping customers from churning quarter-to-quarter is crucial (we’re not arguing against that). Still, it’s even more valuable to address customer churn in a way that cultivates long-lasting, mutually beneficial relationships.

With this long-term perspective in mind, the most optimal strategy is often to balance your acquisition efforts with prioritizing customer retention. After all, a healthy retention rate is one of the key inputs investors use to calculate valuation metrics like The Rule of 40. In other words, focusing on retention over time could lead to a bigger eventual exit.

But don’t get us wrong, there are times when focusing almost exclusively on lead generation makes sense — for example, investing heavily in acquiring new customers makes sense if their predicted lifetime value exceeds your customer acquisition costs (CAC). However, once your customer base is established (typically after your Series A if you’re VC-backed), shifting more of your funds towards user retention can help increase your company’s total valuation and bottom line over time.

Improve Your User Retention with Maxio

Want to prevent revenue leakage and stop throwing dollars into a customer acquisition money pit? With Maxio, you can see exactly how revenue trends across your organization and drill down into customizable reports for individual customer cohorts, product lines, and business segments.

Schedule a demo with our team to get started.

Retention is king in SaaS, for both operators and lenders.

While all retention is good, not all retention is equal. And the ratio between gross revenue retention and net revenue retention contains useful diagnostic information.

We call this “The Gap.”

While the math here is simple, The Gap is a rarely discussed metric that provides helpful insights into the continuing health of your SaaS companies and customers.

While it’s not often discussed, the GRR-NRR gap can be a useful “sanity check” on a SaaS company’s metrics, and when it falls outside of the usual range, it can give a hint to operators and investors that something in a company might need tweaking.

In this webinar conducted by Chris Weber, COO at Maxio and Randall Lucas, Managing Director at SaaS Capital, we discussed:

• Retention benchmarks from this year’s annual SaaS Capital survey
• Common ranges for The GRR-NRR Gap
• What a narrow GRR-NRR Gap means (and ways to improve)
• What a wide GRR-NRR Gap means (and ways to improve)

In this article, we’ll go over the highlights from the webinar and help you understand how to benchmark retention in your own SaaS business.

Retention benchmarks from the SaaS Capital survey

Each year, SaaS Capital conducts an extensive annual survey of over 1,500 SaaS companies to gather anonymized operational and financial metrics. When it comes to retention, this year’s survey revealed several trends in the gross revenue retention (GRR) to net revenue retention (NRR) gap.

• There is a consistent gap: Across the survey sample, NRR exceeded GRR in almost every revenue range, including average ARRs and ACVs.
• The gap widens with contract value: The data showed that as average annual contract values increase, the GRR-NRR gap also grows wider. Lucas noted, “As the annual contract value increases, this gap tends to grow alongside it.”
• The gap normalizes above $1M ARR: When segmented by company revenue size, the gap stabilizes around 12% on average for firms above $1M in ARR. For smaller or younger firms, the gap is more variable above the $1M ARR mark.
• Most fall within 8-20%: While the survey saw GRR-NRR gaps ranging from 0% to over 50%, a clear majority of respondents reported a gap between 8% and 20%.

This extensive benchmark data from SaaS Capital reveals a consistent gap between GRR and NRR in SaaS businesses. But how does “The Gap” affect your business, exactly? In this next section, we’ll go over the most common GRR-NRR gap ranges and what they reveal about your business.

Common GRR-NRR gap ranges

While the gap can vary widely, SaaS Capital’s data found these to be the most common ranges:

• 0-5%: A narrow gap is abnormal and may indicate missed expansion opportunities
• 8-20%: This is the normal range for most established SaaS companies
• Above 20%: An unusually wide gap, which could mean major expansion success or volatility from customer concentration

What a narrow gap means

A 0-5% GRR-NRR gap is a “yellow flag,” according to Lucas. It likely means the business model lacks upsell opportunities and expansion potential. As he explained, “This means you’re not growing your MRR per customer, which means you’re probably missing expansion opportunities within your customer base.”

To widen a narrow gap, SaaS businesses can:

• Add usage-based pricing models
• Introduce new products/modules
• Revamp packaging and pricing

Lucas pointed out that a narrow gap means “there may not be that much growth within the customer’s usage.” So, in addition to adding expansion opportunities, it’s important to ensure your customers are satisfied with your service and able to grow usage with you over time.

What a wide gap means

A gap exceeding 20% is generally positive, signaling major expansion success. But as Weber noted, it’s still ambiguous: “I think what was really interesting about the benchmarking data was that it revealed that a company’s price point or ACV as it was defined, seemed like it produced a larger gap regardless of the overall company size.”

A wide gap could mean:

• Strong upsell and customer expansion success 
• Usage-based pricing is working well
• Potentially high initial contract values

Lucas recommended investigating further: “While a wide GRR-NRR gap is generally a healthy sign, it is also advised to take a peek at and consider just exactly why that’s the case.” 

In other words, even if your company is experiencing healthy retention, you need to investigate the underlying reasons behind that retention or expansion. This way, you double down on what’s working in your business and avoid any unnecessary churn across your customer base.

How lenders assess retention when funding SaaS companies

Now, before we dive into how you can improve your GRR-NRR gap, we need to understand how lenders are scrutinizing your retention metrics. As previously stated, if you have a wider GRR-NRR gap, then you’re likely experiencing success across your retention and customer expansion efforts. However, the health of your customer base is important to potential lenders (like Randall Lucas at SaaS Capital) for entirely different reasons.

For B2B SaaS companies seeking growth capital, customer retention takes center stage in the lender evaluation process. Retention metrics provide critical signals used to assess credit risk, set valuation multiples, and determine funding eligibility.

As Randall Lucas of SaaS Capital explained, their lending is based almost entirely on recurring subscription revenue. According to Randall, “At SaaS Capital, we are lenders to growing private B2B SaaS companies. We lend from 2 to 15 million to such companies, and our only real collateral is the recurring revenue.”

Essentially, the quality of a company’s retention is valued like an asset appraisal due to reliance on recurring revenue streams. Lucas emphasized, “The same way a banker writing a mortgage will appraise a house, we appraise the retention quality of a company’s recurring revenue. So we spend a lot of time, and we care quite a bit about this.”

Both gross revenue retention and net revenue retention provide important signals. Low gross retention suggests higher customer churn risk, decreasing the durability of the revenue stream, while net retention shows the ability to expand wallet share over time.

As Lucas explained, lenders like SaaS Capital analyze the interplay between these SaaS metrics rather than taking them in isolation. He advised, “Looking at one alone, in isolation. Even if you’ve picked that as your most important KPI, it’s gonna be incomplete.”

In other words, the relationship between gross and net retention reveals risks that may not be noticeable if you were observing one metric by itself. For example, high net retention could mask excessive churn, while declining gross retention severely impedes expansion efforts.

At this point, you may be wondering, “Great… but how does this affect my funding eligibility?”

Well, according to Randall, lenders combine retention analysis along with other factors to set their interest rates and valuation multiples. For asset-based lenders, stronger retention supports higher leverage and loan amounts. And for equity investors, a company’s retention health feeds directly into their applied revenue multiples.

Ultimately, all this really means is if you’re seeking growth funding, you should demonstrate a commitment to monitoring, reporting on, and improving retention before engaging with capital partners. Developing cohort analyses and measuring retention trends over time can also add credibility when presenting metrics to potential lenders and investors.

Did we mention that all of this is possible within Maxio? Yep—just take a look at our SaaS metrics and reporting capabilities.

How to improve your GRR-NRR gap

Now that we’ve gone over how lenders think about retention, what specific steps can you take to optimize your GRR-NRR gap? Here are some practical tips that Chris and Randall recommend to improve retention in your company:

1. Trend your retention metrics over time

To start, you should be looking at your retention metrics for longer than one month or quarter at a time. Regularly calculate your GRR-NRR gap and analyze the trends over longer periods of time. Watching for positive or negative movement in the gap over the years will provide better insights than any single data point.

2. Segment your data by cohort

Do a granular analysis of the GRR-NRR gap trends by customer cohort. Look at the gap for customers acquired each quarter or year to identify any issues within specific segments. For example, you may find newer customers have much better expansion behavior and gaps than legacy customers. This could point to potential churn risks from your legacy customer base.

3. Consider adjusted NRR

As Weber suggested, you should calculate an adjusted NRR metric that adds back revenue lost from cancellations or downsells. Compare your current NRR to this adjusted NRR to quantify how much net expansion potential exists. A large difference indicates significant room for improvement in retaining and expanding your overall revenue per customer.

4. Add upsell opportunities

If you have a chronically narrow gap, actively introduce opportunities like usage-based pricing, additional products or modules, and packaging changes to facilitate expansion. However, don’t just focus on adding offerings—ensure they provide value and fill customer needs based on feedback.

5. Ensure customer satisfaction

Improving the gap long term requires keeping customers happy and naturally increasing their usage and spend. To do so, you can tap on your customer success team to survey users, run NPS studies, and research customer needs to identify areas of dissatisfaction you must address first before layering on upsells.

6. Investigate any wide GRR-NRR gaps

While a wide NRR-GRR gap is generally positive, you should analyze the source if it exceeds 20% by a large margin. An unusually wide gap could signal volatility risks if driven primarily by just a few large enterprise customers. The last thing you want is to have the rug pulled out from underneath you because a few outlier customers decided to cancel their renewals at the end of the year.

Key takeaways for SaaS leaders and operators

No matter where your GRR-NRR gap falls, the key is to trend it over time and watch out for any outstanding positive or negative movements. As Weber advised, you should layer in a cohort analysis to back up your interpretation of the metrics.

He also suggested an “adjusted NRR” metric that adds back lost revenue, revealing maximum expansion potential. Comparing your current NRR to your adjusted NRR will show you how much room for improvement exists within your retention and expansion efforts. And while GRR and NRR alone provide limited perspectives, together, they paint a more complete picture of the health of your customer base. 

Ultimately, analyzing your GRR-NRR gap over time, segmented by cohort, can unlock insights into your SaaS business’s health and opportunities that you would have missed otherwise—but you need the right metrics and reporting tools to make this possible.

By leveraging a purpose-built SaaS reporting solution like Maxio, you’ll be equipped with the flexibility and tools to diagnose your GRR-NRR gap properly. You can watch the original webinar or take a tour of our platform to learn more about how thousands of other B2B SaaS leaders are improving their retention with our SaaS metrics and reporting tools.

Last week, I had a great conversation with Alli Tiscornia, COO of Churnzero on aligning your CS and Finance teams. Toward the end of our conversation, we answered viewers’ questions as they came in—but we ran out of time to answer them all live.

These questions span a large array of challenges in SaaS, not just CS challenges. We want to share as much as we can with you, so Alli have each tackled half of the remaining questions. (You can find the other half on Churnzero’s webinar recap post.)

Let’s get into it:

Your questions on pricing, customer success, and SaaS financial reporting

Q: How do you calculate churn differently from month-to-month contracts vs annual contracts. Do you calculate two separate numbers or lump them together?

Yes, track the two separately.

What’s up for renewal changes every month, so you want to track whose contract is expiring, and that can be a monthly, quarterly, or annual contract. What you’ll find is there can often be more volatility with monthly contracts, so folks will try to isolate the two types of billing terms.

To determine the annual retention for MRR (1 minus churn), take monthly retention and multiply it by 12. Sometimes people will take the last 3 months’ average retention and multiply by 4 to reduce some of the volatility inherent in having lots of monthly contracts. 

Annual contracts coming up for renewal in a specific month are part of the superset of the “available ARR” for renewal for that month, so it is important to isolate these. For example, we at Maxio have both annual and monthly customers, and we isolate the 2 types (annual and monthly renewals) to understand what’s happening in each cohort.

There are a couple of “gotchas” when looking at renewals. Mostly Metrics wrote a great article that goes into more detail about the nuances between renewals vs gross retention and net retention. The author also touches on some of the nuances of managing renewals.

Q: If my business requires a CSM irrespective of the contract value, does this mean my company should not be acquiring lower contract value? Or should we take that hit to our revenue in the name of brand recognition (and hope for an upsell)?

Ultimately, I think people recognize that if they’re buying software, they’re going to have to pay for services. They’re typically ok with that as long as it is a reasonable cost (e.g., 10-15% of the software fee). Your goal is to make it as easy as possible to get your customers up and running (aka time to value) so they feel like they’re seeing a return on that investment. 

So how do you make the decision?

For me, it really comes down to unit cost economics and the tradeoff you want to make in terms of investing in acquiring customers upfront with the assumption that they will stay with you for a long enough period of time to justify this investment.

At the end of the day, if your product requires configuration, you will need some sort of post-sales service org to help those folks get implemented and then help with adoption over time. The tricky part is where you capture those costs. Most companies account for implementation costs in cost of sales. This impacts their gross margins. One rule of thumb is that if your gross margin is less than 75% in a SaaS business, something is wrong, and you have to figure out how to sort that out first before anything else. You will not get “software” investors to value your company as software if your starting point is <70% gross margin. If you are in this zone, you are more of a tech-enabled service, which has a different valuation profile.

Next, the Customer Success function is usually captured in Sales and Marketing expenses and will impact your operating margin. This impacts your overall customer acquisition cost. Again, you’re faced with choices in terms of investing in this category based on what you think is going to give you the most bang for your buck in the short, medium, or long term. There is no one answer, but there are industry benchmarks for different size companies with different ACVs.

Q: What metrics should we focus on if our business model is subscription-based for B2C, and a discounted annual price for B2B clients?

The metrics are similar. You want to understand how much it costs to acquire each type of customer, and how you should attribute marketing and sales spending. 

From your question, I’m assuming the type of B2C you’re referring to would be more of a product-led growth (PLG) model where customers are paying you on a monthly basis. If so, there’s a set of PLG metrics tied to product engagement that’s helpful. Kyle Poyar at Open View has a full set of these, and has written a lot on this model. The other model is more of the standard B2B SaaS model, which I assume requires sales team involvement. The discount can be captured in how the contract is written and then carried through on the order.

For each: the key is to really understand your customer acquisition cost. To this end, make sure you have everything baked in for each segment that’s appropriate. Then, layer in churn so you can approximate a lifetime value and start to understand what you’re making on these different types of customers. For example, you probably have higher churn in B2C than B2B, so isolate those. Understand the predictability of the revenue. 

Q: If my company has both subscription renewals and renewals for maintenance and support on perpetual licenses, should we try to move all to subscription? What is the benefit to the customer?

I’m most familiar with a perpetual license model being associated with “on-prem” software. This is often referred to as the legacy software model. 

When you’re paying for perpetual licenses vs subscriptions, you’re effectively buying a house instead of renting an apartment. The customer can get more value over time when renting an apartment because they don’t have to manage the upkeep, and they don’t have to pay as much upfront. 

The other advantage of the subscription model is it can be treated as OPEX vs CAPEX. I’m not an accountant, but my sense is most companies prefer to leverage OPEX because the accounting is much simpler and usually more cost-efficient due to operating expenses being fully deducted in the year they’re incurred. This reduces income taxes for the year and produces immediate cash flow benefits. 

I know some SaaS companies use a perpetual model, but it seems odd, as the advantage for the vendor is you’re continually updating and releasing the software, which justifies price increases over time. In general, everyone’s moving to SaaS/subscription models, and I would encourage you to look closely at the pros and cons of each model. 

To that point, I would recommend checking out the Technology & Services Industry Association (TSIA), which has many books, articles, and conferences focused on the migration of on-prem to cloud-based software and the associated pricing models. While you may be a SaaS software company vs on-prem software company, the lessons regarding the two pricing models would be informative for you to consider.

Q: What should we be looking at for a churn analysis, and at what cadence do you recommend doing it?

Everyone says it’s 5x more efficient to keep customers than to get new customers. As such, I recommend starting with “operationalizing” renewals by setting up a weekly renewals red account program. During this meeting, you gather functional leaders together and discuss accounts that may be struggling with implementation, adoption, or value realization over time. This helps you get in front of potential churn.

You then do basic churn analysis on a monthly basis, where you look at who is churning and why. It’s most helpful if you can break your customers into cohorts by product, by segment, and by region to see if there are any trends in the reasons they are churning.

We do churn analysis every single month and provide a monthly churn update to the board. 

Understanding and reporting on churn are as important as digging into win/loss analysis for Sales opportunities. We use the churn analysis to understand what’s working and what’s not in the customer lifecycle. If you don’t get them onboarded for the 3-4 years you need to return on LTV, you’ve lost money!

For board reporting, we use a trailing 3-month (T3M) and trailing 12-month (T12M) trend to see if things are getting better or worse—again at the product, segment, and regional level.

During the middle of a contract period, you want to be looking at usage and adoption metrics to help predict churn.

Q: We’re considering rolling out an event-based/usage pricing model—any pros/cons you can share?

Events-based pricing and billing can be really powerful because it can be closely tailored to the value your customers are getting from their usage of your services. With this model, you can bill not just on the events count, but also on the attributes of the events. For example, you could charge just per API call, or you can further refine pricing by charging a different rate based on time of day of the API calls or based on some type of API origination source information. It really is the most value-based of value-based pricing models, and that can be incredibly appealing for your customers. 

The “con”: it’s a lot of work to set up.

In order for EBB to work, first you need a billing solution that supports EBB (like Maxio). Then the events must be streamed into the software for the pricing calculations to be formatted per your solution architecture. This might require development work on your end. 

Additionally, you need to set up and configure the computations (e.g. count, sum, or average) to be applied to events and event attributes. The complexity of this configuration depends on the complexity of your pricing model.

If you want to learn more about how B2B SaaS companies are implementing usage-based pricing right now, Maxio recently put out a usage-based pricing benchmarking report based on a survey of 490 SaaS professionals, and you can download it here.

***

Whew! What great questions, and what a great event. My conversation with Alli was truly enlightening, and if you didn’t get a chance to attend, here’s the recording. We go much deeper into discussion around aligning your CS team with the CFO—and answer many more questions like the ones above.

The importance of net revenue retention (NRR) is well established. All other things equal, a higher NRR increases the size of your SaaS business, its growth rate, its profitability, and its valuation. And, importantly, it compounds year after year.

Over time, its impact on valuation is enormous—I have written about this for years. Most folks have gotten the memo by now.

But just as “growth at all costs” is unsustainable and inefficient, so is retention at all costs. 

Benchmarking retention spend

A simple way to track and benchmark retention spending is: Annualized Cost to Retain Customers/ARR. 

I like the numerator of this metric to be relatively broad and include all Customer Success, customer marketing, training, and customer support costs. Any cost incurrent to support and retain the customer, including the costs of the systems, should be included. Just keep it consistent from period to period. Some experts suggest excluding customer support costs because they are included in COGS, but to me, there is no reason they should not be included here. It’s not mutually exclusive, and they are an important part of customer satisfaction.

For the denominator, I prefer ARR instead of “revenue retained in the period” for two reasons. First, revenue up for renewal can change significantly from period to period, which adds noise to the metric. Second, using total ARR recognizes that all customers are continually being supported, and retention is not something that only happens at the time of renewal.

You can benchmark this metric if you want, but the reality is that some companies have an easier time retaining customers than others, and just because you may be spending more or less than average to retain customers does not mean you should necessarily increase or decrease your investment.

Let’s face facts:

1. Some customers will renew themselves year after year with little effort from you
2. Some customers will churn no matter what you do
3. Your product and use cases will make it easier or harder to retain customers than other SaaS companies

The ideal metric would measure the marginal cost of retention against the marginal improvement in retention. Of course, that’s hard to measure, but let’s explore.

How much should you spend to retain customers?

If a company invested one percent more of revenue in retaining customers, and that investment increased their retention rate by one percentage point, would that be a good trade-off or not?

Financially, a higher NRR will make the company grow faster and have a higher ARR over time, but the increased spending will lower profits (assuming the spending is maintained.) The higher revenue will make the company more valuable, and the higher growth rate and lower profitability will be captured in the Rule of 40, which will impact the company’s valuation multiple.

Said differently, higher NRR will increase ARR over time which will increase valuation, while the higher growth rate and higher expenses will create offsetting impacts on the valuation multiple, which may raise or lower the company’s valuation.

Using the most recent correlation between the Rule of 40 (which captures both growth and profitability), and SaaS valuation multiples, you can see that each percentage point improvement in the Rule of 40 increases the valuation multiple by about .06. (Slope of the line.)

Credit to Meritech Capital for this data.

That might not seem like a lot, but it ads-up and gets more significant over time as the growth rate naturally builds based on better retention.

With that relationship in mind, let’s look at two hypothetical SaaS companies to more clearly demonstrate the impact of retention spending on valuation. Company #1 is “Economy SaaS”; they spend 20% of revenue on retaining customers and have a 90% net renewal rate. Company #2 is “First Class SaaS,” They spend 25% of revenue retaining customers and have a 95% net renewal rate. 

Holding all other things constant such as bookings and other expenses, First Class ends up with a higher Rule of 40 than Economy as their higher NRR improves growth which more than offsets the lower operating profit. With a higher Rule of 40, and thus a higher multiple, plus more ARR over time, First Class is more valuable than Economy, as shown in the chart below.

So we have always known that companies with higher retention are more valuable, but now we have a framework to account for the costs of retaining customers and its offsetting impact on valuation.

We asked earlier, “If a SaaS business spends one percent more of revenue to retain customers, and that results in a one percentage point improvement in NRR, is that good or bad? As the chart indicates, it’s a good thing. As you approach a two percent spend for every percentage point increase in NRR, however, the near-term valuation advantage disappears. 

The valuation balancing act of retention spending

So what are the practical takeaways here?

For CEOs and CFOs, having the “1% for 1%” rule of thumb is helpful as you make investment decisions about how much to spend on customer retention. If you can spend one percent of revenue more on retention and increase the retention rate by one percent, do it.

And it works both ways. If you cut spending on retention from 25% of revenue to 20% of revenue, what will happen to retention? If NRR drops five percentage points, you have destroyed value; if it drops half that, you are in the grey zone in the near term but will be eroding value over time because of the cumulative loss of ARR.

In practice, it’s not easy to measure these things. There are long lags between changes in spending and changes in retention, and there is also monthly “noise” in the data. And as mentioned earlier, most retention and churn happen despite what you are doing, not because of it. So you can only make progress at the margin with CS spending.

That said, making investment decisions on customer retention in a complete vacuum is not helpful either. Hopefully, this analysis can help shape a framework that managers can use to make better, value-creating decisions.

Most SaaS professionals are familiar with the leaky bucket analogy.

While a SaaS company may generate consistent MRR/ARR (i.e. the water), it’s commonly offset by churn, a failure to upsell/cross-sell, and late and missing invoices (i.e. the holes in the bucket). Variables like churn and missed monetization opportunities are generally more complex problems that touch multiple parts of an organization, however, late/missing invoices should never be a problem.

Unfortunately, without a clear dunning strategy, it’s near impossible for a fast-growing SaaS company to keep up with all the individual invoices that need to be followed up on month-to-month. This is why Maxio gives you the ability to collect on invoices—no matter your GTM structure (PLG or SLG). Here’s what they look like in practice. 

Collect on late and missing invoices with Maxio

If you want to add a dunning cadence to your subscriptions:

1. In Advanced Billing, select the ‘Config’ dropdown and select ‘Retries & Dunning’.

2. From here, you have a few options. Under general settings, you can select the desired email that you want your dunning communications to be sent from. You also have access to remittance dunning settings, or how many days after an invoice has been sent will it go into remittance.

3. From here, you can set up a retries and dunning schedule based on your preferred payment method. For this example, we’ll be using ‘Card Dunning’ as it’s the most common payment method.

4. Once you’ve selected your preferred payment method, you can select ‘Create Dunning Schedule’ and choose a template to keep things simple.

5. Or, you can create a custom dunning cadence to account for mid-period expenses, deploy dunning if signup payment fails, and gain greater control over each step in the dunning process.

No more chasing down late or unpaid invoices

What do Maxio’s retries and dunning look like in action?

Gone are the days of keeping up with collections in a spreadsheet, sending out one-off emails, and covering desks in Post-It note reminders. Bethany Stachenfeld, Co-founder & CEO at Sendspark, and her team used Maxio’s Cadences and Dunning features to streamline their collections communications with personalized, automated messages that can be sent in custom time frames.

— Bethany Stachenfeld, Co-founder & CEO at Sendspark

Fixing your cash flow problem

Aside from Maxio’s dunning and retry schedules, our A/R Management capabilities allow users to reduce their A/R balance, drive down Days Sales Outstanding (DSO), and give their customers multiple ways to pay through our e-payment integrations. 

Want to get cash in the door faster? Schedule a demo with our team to learn more.

What’s not to love about an army of brand advocates championing your product to others and singing your praises on social media, review sites, and online forums?

While most businesses would agree having product champions is awesome, over 50% of businesses don’t know who their brand advocates are. Even more surprising — 80% of the companies who have identified their advocates don’t leverage them in their marketing, according to JitBit.

Many people associate product champions with B2C brands. If you think brand advocates are exclusive to B2C companies, think again.

“Developing an army of loyal brand advocates should be at the top of every B2B marketer’s priority list this year.” – Jillian Wood, Content Marketing Manager at Influitive

It’s time to stop just wishing you had product champions! In today’s blog we’ll walk you through:

• Why it’s important to identify and engage with your product champions
• How to identify customers that are potential advocates
• Actionable ways to turn your B2B customers into brand advocates

Throughout the blog you’ll see brand advocate and product champion used interchangeably. We won’t, however, be using the terms brand or product loyalists as synonyms for advocates. Here’s why:

While both are great, brand loyalists aren’t necessarily brand advocates. A brand loyalist is loyal to your brand or product, but they may not be actively promoting it to others.

Why cultivating brand advocates is important

The benefits of a customer advocacy campaign are huge. It’s a low-cost way of generating new business that lets you diversify the people you reach and the ways in which you reach them. Executed correctly, a brand advocacy campaign allows you to add to your roster of marketers for very little money (or even for free).” – Sujan Patel, Co-Founder of WebProfits

ecobee Product Manager Mirvise Najafe reminds us that “for B2B organizations, your end-users are not your customers; they’re individuals who currently work at your customers’ companies.”

If those individuals are advocates of your product and they change positions or companies, they’ll be championing your product to new departments and companies!

Product advocates are also key to your company’s long-term growth: they’re loyal, unlikely to churn, refer others, and can provide valuable customer insights. Their insights can help you improve user experience, your user interface, and to formulate more strategic, customer-centric product roadmaps.

Leveraging product champions in marketing also “enables B2B companies to produce authentic content that attracts buyers because that content is coming from the voice of the customers — which is more valuable to prospective customers during the buying process,” explains B2B journalist Brian Anderson.

There are many more benefits to having customers actively championing your products to others, but we think you get the point. Before you jump into determining who your potential advocates are, you’ll want to make sure you have a couple things in place…

What to do before you identify potential brand advocates

Yes, we know you’re ready to hit the ground running and engage with the B2B customers who love your product. Trust us, you want to have some basics in place before attempting to move happy customers to product champions.

Within your company

In order to succeed with customers as brand advocates it is mission critical that you have executive buy-in and a customer-centric company culture.

“A customer-first culture is necessary for breeding advocates, and company leadership needs to recognize that,” said Eric Marcy, former VP of Marketing Operations at The SAVO Group.

You also need to ensure your company has enough resources to delegate for consistent engagement with advocates. Resources can include budget, staff, content, etc.

Finally, it will be necessary to break down silos that often exist between departments so everyone in the company can help identify potential advocates, be aware of advocate initiatives, and understand how the initiatives benefit the entire company.

“Companies have programs running, and a majority of the time one program doesn’t know that another program exists, and they are not being leveraged collaboratively and collectively together,” said Laura Ramos, VP and Principal Analyst at Forrester.

Have a plan

Sure, this seems stupid obvious. But, if you don’t have any experience with brand advocate programs or marketing there are likely aspects of pre-planning you’ll miss.

It is mission critical that you’re very clear about the program’s objectives, metrics, and how success will be defined.

What is it that you want advocates to do? Here are a few examples to consider:

• Refer new leads/customers
• Provide a testimonial
• Write a review
• Share or comment on your company’s blog
• Provide feedback on current or new product features
• Help promote a company event
• Respond to a negative social media post
• Answer other user’s questions in a support forum

Finally, look at it from your customers’ perspective. What’s in it for them?

“It’s about what you are doing for your users. This is the opportunity to say, What benefits can I give that are exclusive and different and going to provide value?” shares Jeanette Gibson, former VP of Customer Experience and Community at Hootsuite. Hootsuite’s Ambassador Program is a great example of a brand advocacy program which has defined some very unique and beneficial perks for its most vocal product champions.

Once you’ve covered the basics, it’s time to figure out who to focus on as potential product champions.

How to identify potential brand advocates

Happy customers

This one is pretty obvious. Talk to your support and customer success teams to identify customers who are very happy with your product and/or services.

Customers who take the time to send positive feedback via support channels or email are also potential product champions.

Referrers

These are your customers who are taking the time and energy to refer new users to your product.

“You can assume that customers who go to the lengths of actually referring new customers to you are brand advocates, or at least, have the potential to become them. Don’t let those who are already acting like advocates slip under the radar,” advises Patel.

If they love your product enough to refer people before you even have an advocacy program available, just think how much they’ll love you when you’ve set up unique benefits to thank them for being product champions!

NPS Promoters

This ties in with the “happy customers” point, but is specific to NPS survey responses.

We’ve previously discussed NPS as it relates to customer success and finding product/market fit, but it can also help you identify potential brand advocates. NPS surveys ask your customers how likely they are to recommend your product to others, on a 1-10 scale.

Customers who respond with a 9 or 10 are described as your “promoters.”

Existing customers who respond they’re would recommend your product to others are also likely to be interested in a brand advocacy program with benefits for championing your product to others.

Social sharers

Look for the existing customers who are already singing your praises and sharing your content on social media. Especially if they’re doing so on a regular basis.

B2B marketing veteran Scott Gillum points out sharing isn’t limited to social media — pay attention to people who are sharing your marketing emails:

“Take a look at consistent content sharers. Make sure you have them identified in your ABM programs. Build email campaigns with content links that are intended to travel, and watch where they land.”

Repeat visitors to your content

More specifically, pay attention to repeat visitors to your content over a longer period of time.

“Buyers who are in the decision-making process have a tendency to ‘burst’ visits. They’ll hit your site in rapid succession and consume a large quantity of content over a brief period of time. Brand advocates consume content more consistently over a longer period of time. Watch and track your repeat visitors, and see if they are also subscribing to your e-newsletter, attending webcasts, etc. You need to track and trend these visitors over the year (or even two),” advises Gillum.

You should also monitor the length of time repeat visitors spend viewing your content. A regular visitor to your blog who spends 20 minutes on a single blog post is taking the time to read the entire post, meaning they’re highly engaged and interested.

Your critics

Yes, you read that right: critics of your product can be potential brand advocates. Chris Pelz, Customer Success Operations Manager at HP Software, explains:

“Listen to your critics, even if you disagree with their feedback. It demonstrates that you value them, which is the first big step towards converting them from critic to advocate. If you act on their feedback, tell them! They’ll be impressed that you listened and could turn into some of your strongest champions.”

Employees

Give your employees more opportunities to be involved with your brand. Solicit their feedback and invite them to share information about the company on social media. Above all, keep it fun and engaging so your employees don’t see it as ‘work’. – Liz Pedro, Director Customer Advocacy at Five9

When she was Director Customer Content & Advocacy at Mitel, Pedro decided to involve employees in the company’s rebranding by inviting them into the Mitel Champions advocate marketing program.

Within the Mitel Champions program, employees “could complete educational tasks and challenges built around the rebrand for perks and prizes. As a result, the company recruited 1,719 advocates, received 151 referrals and generated 102,000 social media interactions around the rebrand,” according to Pedro.

How the Marketo Champion Program identified potential brand advocates

Prior to the Marketo Champions program launch in 2011, then Director of Customer Marketing Heather Watkins first identified specific characteristics they wanted their product champions to have. Once those characteristics were determined, Watkins and her team outlined numerous activities tied to each characteristic.

For instance, “is loyal reference for our organization” was one of the characteristics they determined a Marketo Champion should have.

The team then identified the following activities related to that characteristic:

• Refers Marketo to their peers
• Speaks on behalf of Marketo at events or with press
• Advocates for Marketo in B2B social media
• Promotes our thought leadership content
• Blogs about experience with Marketo

When you’re just getting started and beginning to identify potential product champions, your identifiers may not be as specific as Marketo’s were. That’s ok. We’re sharing a variety of brand advocate program specifics throughout this post so you can get additional ideas on what might work well for creating and engaging with your own brand advocates.

Now that you have some ideas on how to identify potential product champions, let’s talk about how you go about actually turning your B2B customers into advocates who actively champion your product others.

Actionable ways to turn your B2B customers into brand advocates

Start with the basics: a great product & user experience

“What makes customers fall in love with a brand? A quality product, great service, and consistent experience. Always start with the fundamentals.” – Robbie Richards, B2B Search Marketer

Once you’ve met the basics, then exceed your customers’ expectations.

“You need to do much more than meet your customers’ expectations. You need to go above and beyond and offer customer service that blows their mind. The reality is that meeting customers’ expectations is just that – doing what they expect. Yeah okay, they might go away satisfied – but will they shout about the experience to others? Probably not,” explains Patel.

Surprise B2B customers with an unexpected gift

This is in-line with the point above. By surprising customers with an unexpected gift you’re certainly exceeding their expectations.

It’s even better if the gift has a personal element to it.

For example, here’s a tweet that started a Twitter exchange with Skype. I tweeted about my dog interrupting a Skype work call to bark at the FedEx guy (I work remote):

A few days later a package showed up at my doorstep, complete with a Skype dog bowl! They even included a handwritten note:

I’m, personally, a huge fan of handwritten notes. I appreciate that it takes time to write a personal message and in today’s world of digital communication a handwritten note really stands out.

Buffer has an entire blog post describing the many ways they surprise and delight their customers (worth the read) and Buffer Community Champion Nicole Miller shares an important insight:

“We’ve learned it’s not about the size of the gift, but the heart behind it. Many times, our community members are happier about the handwritten note than the stickers or shirts. This makes me think that this sort of connection is attainable at any size company on any budget.”

Help customers reach their professional goals

This may sound a bit lofty, but there are very feasible ways to help your B2B customers attain their professional goals and as a result, become your brand advocates.

One way to help your customers in their own professional advancement is to provide education opportunities. While working at Hootsuite, Gibson gave a presentation explaining how education helped turn customers into product champions:

“We [Hootsuite] know that in our research, offering education is a way to help your audience grow and learn in their personal careers. It’s helping us drive engagement. In fact, we saw a 40% increase in engagement by offering this type of education program.”

You can also help customers obtain speaking engagements at your own company’s events or industry conferences. This tactic can be done both to turn customers into brand advocates, but also as an incentive to reward brand advocates for championing your product to others.

“Exclusive speaking opportunities at Marketo User Summit and other events” is one of the benefits Marketo awards advocates in its Marketo Champions program.

Just imagine how amazed and thrilled your customers would be if you helped them obtain credibility with their peers via an important speaking engagement before they’re even officially a part of an advocate program — talk about exceeding their expectations!

Share your customers’ successes

Similar to the point above, celebrating your customers’ successes can be a benefit for product champions in your advocacy program, but you can also use it to help turn B2B customers into brand advocates.

Make a note on customers accounts if the company wins an award or reaches a milestone so your employees can congratulate them on the success when they interact with the customer.

“Recognize their contributions proudly in your marketing collateral. Feature them in blogs, case studies and videos. Give them shout outs on social media when they achieve a certain goal or earn a promotion. Just make sure the spotlight is on their accomplishments—not your product.” – Mirvise Najafe, Product Manager at ecobee

At Maxio, one of the ways we highlight our customers’ successes is through our customer stories.

Spotlighting and sharing customers’ successes is one way to create an emotional connection with B2B customers. Google and marketing research firm Motista surveyed 3,000 purchasers of 36 B2B brands across numerous industries and found “on average, B2B customers are significantly more emotionally connected to their vendors and service providers than consumers.”

While initially you may find this surprising, co-authors Sam Nathan and Karl Schmidt explain why an emotional connection makes sense and is necessary in B2B:

“Business purchases can involve huge amounts of risk: Responsibility for a multi-million dollar software acquisition that goes bad can lead to poor business performance and even the loss of a job. The business customer won’t buy unless there is a substantial emotional connection to help overcome this risk.”

Wrap-up

The list above isn’t an exhaustive list, but should give you some great ideas about how to turn your own B2B customers into passionate brand advocates. Did you notice a common theme among all of the suggestions? All were a variant of exceeding your customers’ expectations.

Now it’s your turn: what have you found to be the most effective way of turning your own B2B customers into product champions? Let us know in the comments below.

The old marketing addage, “It costs more to get a new customer than it is to retain one,” has been proven time and time again.

And for SaaS companies, this couldn’t be more true. According to the RAIN Group, it takes 8 marketing touches to get an initial meeting with a potential customer and who knows how many more meetings, demos, and sales pitches after that until they convert. All of those marketing campaigns and salesperson hours cost (a lot of) money.

Thankfully, the prevalence of subscription-based plans in the SaaS industry keeps customers chugging along, working in your platform, and covering your costs for software development. Assuming, of course, they don’t find a reason to leave.

But sometimes they do. In fact, KeyBanc Capital Markets’ 2022 Private SaaS Company Survey reported that most respondents indicated an average of roughly 10% of ARR that had been up for renewal but failed to realize.

So what leads a paying customer to defect—and more importantly, how do you prevent it? In this article, we’ll review the challenges of retaining customers, provide goal customer retention rates and metrics, and wrap up with ten of our favorite customer retention strategies to achieve predictable revenue growth over time.

The challenges of SaaS customer retention

As explained above, while customer retention is vital to any business, it’s even more critical for SaaS companies. Subscription-based business models require customers to remain continually subscribed to ensure profitability.

Unfortunately, there are various reasons an existing customer might opt for a new software solution and your key to combatting these challenges is to first know what you’re up against. Below are some of the common challenges associated with SaaS customer retention.

• Market competition: With numerous SaaS companies offering similar services, customers have more options to choose from. SaaS companies must remain competitive to retain their customers.
• Low customer satisfaction rates: Customer satisfaction is critical to retaining customers, as dissatisfied customers are significantly more likely to switch to a competitor.
• Non-competitive pricing: SaaS companies must price their services competitively to retain customers. High prices may lead to customer churn, while low prices may negatively impact the company’s profitability.
• Declining product/service quality: SaaS companies must deliver high-quality products/services to retain customers. Poor-quality services will almost certainly lead to customer churn, negative reviews, and damage to the company’s reputation.
• Inefficient onboarding: It’s crucial to ensure that the onboarding process is smooth and efficient to prevent customers from churning. Do not underestimate how quickly a customer will choose one service over another based on convenience.

There are more challenges for SaaS customer retention to be sure, but these are some of the biggest ones. However, by optimizing and keeping tabs on the customer experience, nearly all of these challenges can be mitigated.

Metrics for measuring customer retention

So, how does one ‘keep tabs on the customer experience,’ you may wonder?

To effectively manage customer retention, your best bet is to measure and track the following SaaS metrics and KPIs over time. This data will help you identify areas of improvement and spot issues before they hurt total revenue. The most important and indicative metrics to watch include:

• Customer Lifetime Value (CLV or LTV) measures the total revenue a customer is expected to generate over the entire period of time they use a company’s products/services. CLV = Customer Value x Average Customer Lifespan
• Customer Acquisition Cost (CAC) measures the total cost of acquiring a new customer. CAC = Total Sales and Marketing Expenses ÷ Number of New Customers Acquired
• Net Promoter Score (NPS) measures customer satisfaction and loyalty by asking customers, on a scale of 1-10, how likely they are to recommend a company to others. Promoters respond highly with scores 9 or 10, passives respond with 7 or 8, and detractors respond with 6 or lower. NPS = Percent of Promoters – Percent of Detractors
• Monthly Recurring Revenue (MRR) measures the predictable revenue you have coming in each month, and is found by multiplying the number of subscribers’ active accounts with the average revenue per user (ARPU). MRR = Number of Active Accountsx ARPU Monthly Billing
• Net Revenue Retention (NRR) measures the revenue retained from existing customers after accounting for churn, upgrades, and downgrades. NRR = (MRR at the End of the Period – Expansion MRR Contraction MRR) ÷ MRR at the Beginning of the Period
• Customer Churn Rate measures the percentage of customers who cancel their subscription within a given period, including customers who have paused subscriptions. Customer Churn Rate = Number of Customers Churned within a Given Period ÷ Total Number of Customers within the Same Period

10 effective SaaS customer retention strategies

Based on what we’ve already covered, you can see how customer experience and product quality work hand in hand to keep customers engaged for longer periods of time—so now it’s time to dig into the details and review ten strategies focusing on customer retention.

1. Prioritize a smooth onboarding process

You know what’s bad for customer retention? Signing a contract, gearing up to implement a solution, and getting lost in the process. Or worse, getting left behind or forgotten about entirely.

While you should make it easy for customers to sign up, you can’t stop there. Pave the path for a smooth product experience by having an onboarding specialist help users set up their dashboard to best meet the required needs. Provide a self-guided knowledge base that users can learn from, with detailed instructions and tutorials. Or, consider having the customer support team host a monthly training webinar to walk through the most commonly asked questions—then use those recorded calls to build a library of videos for users to access later as needed.

Generally speaking, the best way to assess the strength of your onboarding is to put yourself in the customer’s shoes at every stage. A good place to start is to ask yourself, “What would I need if I were just signing up?”

2. Provide a superior customer experience

Providing an exceptional customer experience is crucial for customer retention—and you can do this by making sure every aspect of your software and support process meets your customers’ expectations.

• Ensure software features are consistently functional. You already know this is your number one priority—but scaling your development team to handle the project load takes careful planning. 
• Maintain transparency regarding updates. Bugs will occur, but maintaining an update priority calendar and communicating with users will go a long way in building trust.
• Make the paperwork effortless. From initial sign-up to monthly billing and annual customer renewals, automating your processes will help keep things moving. Recurring auto-billing and invoicing features help to reduce churn rates, keep your finances healthy, and keep you focused on providing high-quality products and services to your users.

Also, keep in mind: having a strong human touch in your company interactions with customers can go a very long way. People won’t always remember what you said or what your product did, but they’ll always remember how your company made them feel.

3. Continuously improve the product

Even if your SaaS technology is doing well right now, it’s not evergreen—no technology is. As tech abilities, market demand, and user interests constantly evolve, you need to stay ahead of the curve and constantly be willing to make things better.

For this reason, you should continuously seek out customer feedback and take a serious look at recurring themes as they come in. But more than that—you need to take action and improve your product to ensure it meets the needs and expectations of your customer base. Do this through regular updates and new feature releases that address growing trends in the industry.

4. Offer value-added services

Another strategy to increase customer retention is to offer an array of add-on services and features. These offers are supplemental to your core product.

For instance, you might choose to offer an extended and ultra-personalized onboarding or platform set-up service. You could provide consulting on an as-needed basis. Or, provide assistance in creating and reading analytics reports.

Separately, and if you don’t do so already, you might offer tiered access to certain platform features, or create an a-la-carte menu of features for users to select from.

These paid services and features are more than just an upsell or money grab—they help customers get the most out of your product, building a solution that’s truly tailored to their needs, and increasing their loyalty.

5. Implement a customer loyalty program

Plenty of companies use loyalty programs to entice current customers to maintain their subscriptions, and luckily, there are many ways to structure a customer loyalty program that helps retain your most valuable customers without eating into your profitability.

For example, you might offer customers quarterly perks—small surprises they earn just by keeping their engagement going. Offer up the chance to test or access new features early. Or, offer your most successful and loyal customers the chance to build brand awareness in a co-branded marketing campaign by promoting them as a customer success case study.

Another similar option is to create a referral program for your loyal customers to benefit from when referring friends and colleagues to your software. The reason: word-of-mouth advertising has dual benefits. The first is the zero-cost acquisition of new leads—and that’s a big win, surely. But the second lesser-spoken-of benefit is the positive reinforcement existing customers experience. Just like how repeating daily affirmations can increase a person’s self-esteem, continually speaking highly of your software can help mentally reinforce your users’ loyalty. A small referral credit toward a future invoice is surely worth it!

6. Provide excellent customer support

While this should go without saying, it’s worth mentioning out loud. SaaS companies absolutely need to provide fast and efficient customer support to retain their customers. In this age of instant gratification, your customers will expect fast responses to solve any problems they experience—and the higher your price point, the faster they’ll want that service.

And what if you can’t meet their customer support expectations? Well, they’ll quickly grow frustrated, lose confidence, and look for the ‘unsubscribe’ button.

The best way to do so is to hire a fully trained and easily accessible customer support team. Make sure support specialists are experts on your product, and able to answer questions without transferring users to another specialist. Provide multiple access points for customers to reach a support member, including phone, chat, and email. And when possible, try to personalize the experience. Have specialists review customers’ previous support requests to look for recurring issues and solve the source of the problem.

7. Engage with customers

If you think about it, customer engagement is a core element—dare we say, a requirement—of any SaaS product. You need to listen, understand, and serve your customers’ needs in order to fulfill them.

This level of ongoing engagement can be done at a high level through timed, automated email campaigns. Personalized message announcements and tagged email funnels based on users’ specific interests are perfect examples. Better yet, cultivate two-way conversations with your customers via social media. Post thought-provoking industry insights, ask for software requests, or share updates and behind-the-scenes looks at how your company functions. You might even host an ‘Ask Me Anything’ type forum event or webinar. Whatever your plan, be sure to open lines of communication and engage your community in conversation.

This sounds easy enough, but in reality, it can be a lot to offer this kind of personalized outreach. But the insights you’ll gain, the relationships you build, and the loyalty you’ll garner will be well worth the effort.

8. Take action on customer feedback

This brings us to our next strategy: Not simply collecting feedback, but taking action on it. However it’s gained, whether via user surveys, social sentiment data, customer support notes, or otherwise, this important information should never go to waste. Instead, store it in a centralized location and review it at regular intervals.

Acting on this feedback and taking real strides towards solving users’ pain points with your software and creating new tools to better serve them can help retain customers, attract new ones, and extend the customer lifecycle.

9. Monitor key metrics

SaaS CFOs should regularly monitor key metrics, like those mentioned earlier, to identify areas of improvement and spot issues before they hurt total revenue. By monitoring user behavior and identifying trends, SaaS businesses can address retention issues proactively. For example, if overall product usage suddenly drops, you can be alerted and take action before customers churn.

If you truly want to understand your customer retention metrics and financial health, using a dedicated platform like Maxio is your best bet. Maxio offers several features to help SaaS companies better monetize their businesses, including built-in LTV, CAC, and ARR reporting, so you can identify your most profitable customers, find trends in their customer experience, and optimize their marketing and sales efforts to replicate this experience more frequently. Taking this kind of proactive approach and monitoring customer retention metrics will drive revenue growth and increase profitability.

10. Take the questions out of invoicing

When signing on with a SaaS platform, each customer will have different needs. Some will be able to handle your standard contract and payment terms, while others may need flexibility on contract terms, payment methods, or billing frequencies. Having the flexibility to meet those varying needs will go a long way in establishing the foundation for a long-term customer relationship.

You can take all the questions out of monthly billing by utilizing easy-to-understand itemized invoice templates that clearly state how the total amount due was determined. And for the utmost ease of billing, invoicing, and payment collections, offer your customers a user-friendly self-service portal that they can manage on their own time, at their convenience.

Make SaaS customer retention issues a thing of the past

Customer retention is a crucial aspect of any business, especially for SaaS companies. Retaining existing customers is far less expensive than acquiring new ones, and it leads to revenue growth, as loyal subscribers are more likely to purchase add-ons and refer others to the business. Being proactive in identifying and addressing any retention issues as they arise is the best way to maintain high customer retention rates.

Fortunately, software tools have made it easier than ever for SaaS companies to manage customer retention strategies effectively. For example, at Maxio, our financial insights platform is designed specifically for SaaS businesses to uncover business insights—such as metrics that can measure customer churn—and scale their financial operations with flexibility and control.

If your SaaS business is looking to boost its customer retention rates and increase revenue growth, Maxio is an excellent tool to consider. With real-time SaaS metrics and analytics reporting, our software helps you identify retention issues, better understand your financials, and mitigate churn risks before they become a problem. Schedule a demo today to see how Maxio can help you achieve your retention goals and unlock your next stage of growth.