Ashish Srimal, the co-founder and CEO of Ratio, is a SaaS entrepreneur with a background in building SaaS startups and leading large SaaS businesses. He emphasizes the importance of customer retention in order to lower the average customer acquisition cost (CAC) for B2B software-as-a-service (SaaS) companies, which can range from $239 to $1,450. Maintaining a healthy customer lifetime value (CLV) to CAC ratio is crucial for the sustainability of a SaaS business.
One strategy that SaaS companies use to retain customers who may be churning due to high costs or underutilization of their subscription plans is downselling. While this can be effective in retaining customers, it may not be the best strategy from a revenue standpoint. Downselling essentially means making less money from the same number of customers while keeping the sales and marketing budget the same. This can negatively impact the customer lifetime value (CLV) even though the CLV to CAC ratio remains steady.
To combat downsells and improve customer retention during SaaS renewals, it is important to embrace continuous engagement with customers. This involves mapping out touchpoints in the customer journey and developing engagement strategies through various channels like product content, email, social media, and more. Prioritizing net retention through exceptional customer experiences is also crucial, as it can lead to a higher Net Retention Rate (NRR) which is essential for revenue growth.
Implementing the RADO (retain-acquire-develop-optimize) framework can help SaaS companies better allocate their resources and cut down on downsells during renewals. By focusing on retaining and developing existing customers, companies can keep their high-value accounts satisfied and set them up for growth opportunities. Tracking both lagging and leading indicators can also help predict and engage with at-risk customers before they churn, further reducing the likelihood of downsells.
Offering flexible payment options through embedded financing solutions such as buy now, pay later (BNPL), can also help prevent downsells by providing customers with alternative payment terms that suit their financial situation. This can prevent customers from churning simply due to economic constraints. Overall, by combining strategies like continuous engagement, exceptional customer experiences, smart resource allocation, proactive customer engagement, and flexible payment options, SaaS companies can turn potential downsells into opportunities to strengthen customer relationships and revenue growth.
