How Can Customer Retention Boost B2B SaaS Profits?

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Whether it’s B2C, B2B or B2B SaaS, customer retention is an important factor in a company’s journey. However, while a B2C company can survive through new clientele and marketing efforts pushed toward acquiring new audiences, the length of a B2B company’s journey is essentially determined by how many customers can be engaged and retained. In this way, marketing schemes and engagement programmes are directed almost solely toward customer retention. 

Looking at B2B SaaS, specifically, it is important to track out the entire customer experience before a sale is even made. For instance, if you run a SaaS company and you have spent considerable time creating marketing models and sales funnels to convince a customer that they need your product, then that is only the first step in a business partnership. The next step comes in keeping the customer and setting out a lifetime value to actually bring in profit. 

The thing about SaaS business models is that they only gain profitability over time. Of course, as mentioned previously, it is important to market your company efficiently during the first step. But success in this area is not going to lead to a significant (or even noticeable) return. 

If your customers cut and run before completing enough payment cycles that would break even on acquisition cost, then the journey has essentially been inconsequential. To get lifetime value from your SaaS model, it is crucial that the goal is switched to renewing customers multiple times over, lowering the acquisition cost and boosting that profitability.

As a SaaS business, your job is to create and deliver software services to other businesses, with a customer only paying between 5% to 15% of total lifetime value upfront. This is why retention is intrinsic in the nature of SaaS. The company itself is going to spend anywhere between 1X to 3X the ACV (annual contract value) as a CAC (cost of acquiring the customer), so the acquisition is essentially an incurred loss. The real plan is to upsell, grow, and ensure that your acquired customers become long-term users. 

This is also where traditional and more modern B2B customer retention strategies come into play. With B2B, retaining customers is not only a profit plan but a marketing one too. The businesses that use a service will likely begin to recommend the service to others, helping to bring in more customers through referrals. This is equally true for your SaaS business. A retained customer similarly can become a marketing tool, working to promote your company with word of mouth, equally boosting your profit.

Any B2B company understands that, by boosting customer retention by 5%, profits can be increased by up to 95%. This is a huge leap in bottom line profit, which is why it is important for your company to track the customers you are retaining and the money that is coming from them. This includes both the NRR (net retention rate) and GRR (gross retention rate), both of which can show you how far you’ve come and how far you still need to go. 

It is important to understand, however, that 100% SaaS customer retention is not always plausible. Customers can jump ship for reasons unknown (or, at least, reasons beyond your company’s control), so there is no shame in unexplained churn. The crucial thing is that you set yourself goals. 125%+ recurring retention is a good way to start off, as the retained customers can make up for the loss of revenue from churn. Of course, the promised land is to achieve absolute negative churn, but no one is expecting that. As long as your goals are high and your mission is clear, your SaaS company is sure to prosper and achieve good profit.