The Retention Rate Formula: Your Pathway to SaaS Success

The SaaS market is expected to be worth $195 billion around the world in 2023. Even though SaaS is growing at an incredible rate, many companies face a huge problem: keeping customers. Bain & Company says that keeping just 5% more customers can cut costs by 25% to 95%. The fact that this number is so shocking shows how important the retention rate formula is for long-term success. For SaaS businesses, recurring revenue is king, and mastering retention metrics can mean the difference between survival and growth. But what is the formula for the retention rate, and how does it fit into the bigger picture of your Total Addressable Market (TAM)?

How do you figure out the retention rate?

At its core, the retention rate formula finds the proportion of customers who keep using your service after a certain amount of time. It is easy to remember but very effective:

This equation shows how well you’re keeping your current customers, which is a very important part of any SaaS business model. A high retention rate means that customers will stick with you, while a low rate means that customers are leaving, which could hurt your profits.

Not only does customer retention show that you’re happy with your customers, it also shows how much potential your Total Addressable Market (TAM) has. You can improve your TAM estimates and focus on groups where long-term relationships are more likely to happen if you know about retention trends.

How to Keep Customers Instead of Getting New Ones

People who work in the SaaS industry often love getting new customers, such as new sign-ups, leads, and market share growth. Acquisition is important, but it’s not the only thing that matters. In the long run, retention is more important for two main reasons:

It’s five times cheaper to keep an existing customer than to get a new one. When you have existing customers, you don’t have to spend as much on marketing and getting new ones.

Higher Lifetime Value (LTV): Customers who stay with you are more likely to renew their subscriptions, upgrade their plans, or tell others about your service, which increases their overall value.

In addition, retention tells you a lot about how well your product fits with your Total Addressable Market. For example, a high churn rate could mean that your product doesn’t fit as well with some of your TAM, which would mean you need to change your strategy.

The Link Between TAM and Retention

There is a direct link between retention and TAM. A strong retention strategy helps you get the most out of your TAM. Let’s look at an example: Let’s say you’ve found a TAM of 50,000 companies that are interested in your SaaS product. Customers who leave aren’t likely to come back, so if your retention rate is only 70%, you’re actually limiting the number of people you can sell to.

Not only will you make more money, but your TAM will also trust you more if you can keep them. Keeping customers interested in a product shows that it is reliable, which makes it more appealing to people in your target market. This positive cycle can give you an edge over your opponents and help you take over your TAM.

How to Improve Retention Rates in Real Life

SaaS companies need to be proactive if they want to keep customers. Here are some strategies that can be used:

Spend money on onboarding. A good onboarding process will help customers understand the value of your product right away. Up to 82% more employees stay with a company that has good onboarding processes.

Check for Feedback from Customers: To find out how happy your customers are, use surveys, Net Promoter Scores (NPS), and reviews. Taking feedback into account makes relationships stronger and builds trust.

Offer Different Levels of Support: Not every customer is the same. Giving high-value clients extra help can make it much easier to keep them as customers.

Product updates that are regular and useful show customers that you’re always getting better to meet their needs.

Use Data Analytics: Find patterns, guess when customers will leave, and step in early with tools for data analytics. This data-driven approach is essential for understanding how customers act and improving efforts to keep them as customers.

You can get more customers to stay with you and make the most of your Total Addressable Market by using all of these strategies together.

How HubSpot Can Help You Get People to Stay With You

Data is the most important part of any strategy for keeping customers, and HubSpot does a great job with it. With HubSpot’s suite of tools, SaaS companies can keep an eye on how customers act, set up automated campaigns to keep customers interested, and look at real-time retention metrics. Here’s how HubSpot fits in with successful customer retention:

Detailed Analytics Dashboards: HubSpot’s CRM platform has an easy-to-use interface for keeping an eye on interactions with customers and finding out where you might be losing users.

Automated Workflows: Use personalised email campaigns and automated follow-ups that are based on how customers usually use your site to keep them interested.

Customer Feedback Tools: HubSpot lets you add surveys and feedback forms right into your workflow, which gives you useful information you can use to make your product or service better.

With HubSpot, you can find out which parts of your Total Addressable Market are doing well and where you need to put in more effort to keep customers. To get a personalised demo, set up a time to meet with Ale, our HubSpot expert, who will show you what the platform can do.

Putting Retention and 9H Digital Services Together

We at 9H Digital are experts at making complete solutions for SaaS companies, such as setting up HubSpot, improving CRM, and mapping the customer journey. It’s not enough to just do maths to increase your retention rate; you also need to use the right tools and strategies. Our services work well with HubSpot to help your SaaS business grow, whether you need to change your content marketing, make your SEO better, or add advanced analytics.

Start by doing something.

To be successful with SaaS, you need to keep customers, and to do that, you need to know your Total Addressable Market. Customer turnover shouldn’t stop you from growing. Book a demo of HubSpot with Ale today to find out how data-driven insights can change the way you keep customers. Book a call here.