While 60-75% of your Retention does come from things like building the right product and making sure you’re delivering value to the right customers, 25-40% of your Retention comes from tactical levers in your business, which you can implement quickly.
- Active cancellations with cancellation surveys and salvage flows
- Expansion revenue with term optimization and add-ons
- Payment failure recovery to reduce involuntary churn
[Transcript] Boost LTV or Die Trying
Although transcriptions are generally very accurate, just a friendly reminder that they could sometimes be incomplete or contain errors due to unclear audio or transcription inaccuracies.
So lucky to have Neel Desai, Director of Product at Paddle, joining us. He’s going to talk about boosting LTV and how hard we should be trying to do that. Is that right, Neel?
That’s exactly right, appreciate it, Gary.
I appreciate you being here. I’m going to throw up your presentation; feel free to jump in. I’ll be back for some Q&A in a little bit.
Awesome! Let’s dive in. So, thanks, Gary, for the introduction. Welcome, everyone. My name is Neel Desai. As Gary said, I work at Paddle.com, where I lead some of their product teams. I’m excited to chat a little bit about lifetime value today.
We have 10 minutes, so we’re going to get right into this and hopefully have time for questions. First and foremost, not all retention is created equal. What I mean by that is, over the last decade, here at Paddle and at ProfitWell, we’ve studied the financial and SaaS metrics data from over 30,000 different SaaS companies.
What we’ve realized is that actually, 40% of all of your retention comes from a subset of tactical levers that you can go implement tomorrow. Hopefully, in the next 10 minutes or so, I can give you some actionable tactics to actually drive LTV and boost retention while you obviously work on those longer strategic things like finding the right customers and making sure that your product is really good.
If you do some of these things, what can you expect? Well, what we’ve seen in the data is by implementing even just a couple of these strategies, you can have a massive impact on not only LTV but reducing churn and improving net revenue retention as well.
With that, let’s dive right in. First and foremost, let’s define retention. What do we actually mean by that? Well, retention ultimately is keeping your paying customers around longer, right? In SaaS, we measure this by usually two metrics: Net Revenue Retention and User and Revenue Churn. These are good indicators of how healthy my business is and how much I’m retaining from one month to the next.
Now, when we think about the different levers we have to drive retention, these are a number of different levers you have at your disposal to actually drive retention–things like reducing your active cancellations or working on expansion revenue and recovering more payment failures. But the thing is, not all retention is created equal. Some of these things, like improving time-to-value or sells and upsells are actually strategic projects that’ll probably take a lot of cross-functional effort.
However, there are a couple of tactical improvements that are worth looking into that have a relatively high impact with a relatively low effort to implement. Today, we’re going to focus on a couple of these that you can probably bring to the team and start thinking about implementing for your SaaS business today.
First up, we have Plan Optimization. What do we mean by that? Well, longer-term plans typically mean much higher lifetime value. This is no secret to you guys, right? Everyone has on their pricing page probably a monthly option or an annual option for the customers to pick what’s best for them.
Just to share some data around this, in consumer SaaS, quarterly and annual plans typically see a 2-4X higher LTV, whereas in B2B SaaS, the same longer terms typically lead to a 1-3X higher LTV. This makes intuitive sense; your power users and customers that like your product opt into a much longer term to get benefit from your product.
But the key here is you need to ask beyond the signup process. Actually, asking customers during the sales process or when they’re signing up is arguably one of the worst times to get them to opt into an annual plan when they haven’t even gotten any value from that product yet.
Typically, we see around the 8-12 week mark as an inflection point where if you do the right kind of outreach in the right way, you can see a higher conversion in monthly to annual upgrades at that 8-12 week mark.
Here’s a good example from a company we work with called Whoop. Two main things to call out here: use a plain text email and, specifically when you make the offer, quantify the discount in months free rather than a percentage.
Humans have a really hard time understanding discounts as a percentage for a bunch of reasons we don’t have time to get into today. But if you use ‘one month free’ or ‘two months free’ to opt into that annual plan, you typically see much higher conversion.
The second thing here is to make sure that your customers don’t need to pull out their credit card to make this upgrade since they have obviously already given that to you earlier in the process. For B2B SaaS, two months free is the most common discount we see, peaking at around four months free for low-price products and around one month free for high-priced products.
Second, we’re moving right along, and I promise we’ll have time for questions at the end, but I want to make the most use of these 10 minutes here. So, second, we have winback and triage cancellations.
Unfortunately, at every point in the customer journey, at some point in time, a customer is going to raise their hand and want to leave and end the relationship with you, right? And what should you be doing in those cases when the customer cancels?
Well, there are two things. The first is that you want to catalog why every customer is leaving. I don’t care if it’s a basic Google form to start as an MVP; you should understand why a customer cancels every single time. You can use this data for your product teams to ultimately improve the product and predict future moments of churn when similar customers may be in that boat.
After that survey, after understanding why, you have a number of different options to actually implement when it comes to saving or salvaging that user. You have things like salvage offers: putting them on a cheaper plan or a discounted plan for a set period of time so that they can continue getting value from the product before getting back on the sticker price.
You can put them on a maintenance plan. This is really effective for companies that have a high implementation cost, or it’s a workflow product that requires a number of things to configure. This way, they have their things when they come back.
You can pause the subscription. Definitely don’t count this as MRR, but you can pause the subscription until it’s over. Then obviously, you can bump them down to a free tier or even just play chicken and be there when they’re ready to come back.
This is a basic framework that we found works really well to understand why folks are churning so you can make product improvements and also deploy interventions at the right time when folks are canceling to hopefully save as many of them as humanly possible.
Make sure that you’re very explicit around when renewals are going to happen. There’s increasing regulatory pressure to make sure that you don’t have any dark UX here. And even in certain jurisdictions, one-click cancellations are becoming the norm.
California and Vermont are some of the first states here in America that are mandating one-click cancellations. You may need to tweak the flow based on the jurisdiction that the customer is in. Again, you should be able to reduce cancellations by at least 10 to 20% with proper salvage offers and off-boarding in your cancellation process.
Lastly, payment failures are the largest single bucket of lost customers. You need a process for recovering payment failures. I know what you’re thinking: “Hey Neel, if my customer really wants my product, they’re going to find a way to update it.”
Surprisingly, even in 2023, this is just not the case. There remain 130+ unique reasons why a credit or debit card can fail, and to be honest, this problem is only getting worse. Five years ago, if you had asked me, I would have said crypto probably fixes this problem. I was wrong.
This problem is only getting harder with more and more payment gateways, more and more cross-border transactions, and, ultimately, more and more banks involved in this process.
A couple of little things to point out here: do not use email before the point of failure. So, a lot of companies will say, “Hey Neel, your credit card is set to expire next month. Update it here.”
Time and time again, we’ve seen that email correlates with 10 to 18% higher active cancellations. They tend to wake up sleeper accounts, and every single time we’ve tested this, it leads to more cancellations.
Instead of email, you should be doing in-app messaging to those users because that way, you’re only targeting folks that are getting value from the product and have a much higher likelihood of sticking around.
Second, in addition to the retries that your billing system might be doing, to get even bigger gains, do your own retries. You typically can do, depending on the network and the gateway, up to the upper ten retries before getting in trouble with the networks.
For example, if you’re a consumer product, the 1st and 15th of the month here in America, people get paid, and time and time again, we see the recovery rate spike when you retry at that time, and you avoid a bunch of insufficient funds right declines.
Lastly, do not use stylized emails for these. Plain texts perform way, way better from a spam and filtering perspective, but also just you don’t want to sound like a bill collector. When you send a plain text email saying, “Hey, your payment failed. We’d love for you to update it here,” we’ve seen that typically results in seven to ten percent better conversion.
Then, lastly, make sure you’re speaking in their language. If you have customers around the world in different countries and different jurisdictions, we’ve seen that localizing that copy to their native language can help by 10% or more as well.
So, with that, I believe we’re at time. Just, we’re gonna have a Q&A here.
But if anyone wants to reach out and dive deeper and do a proper retention audit where we score your retention efforts along all of the different frameworks we’ve talked about today, I’m happy to chat. Just send me a note at email@example.com, and we’re more than happy to help.
Hot Takes Live
Catch the replay of Hot Takes Live, where 30 of the top SaaS leaders across Marketing, Sales, and RevOps revealed some of their most unpopular opinions about their niche.
These leaders shared what lessons they learned and how they disrupted their industry by going against the grain (and achieved better results in the process).
Hey Neel, well done, buddy. Thank you so much for the offer. For anyone watching or listening, please take advantage. The team at Paddle is amazing. I’m a big fan of that organization and big fan of Neel. Neel, is there a product that helps with recovery?
There is, and there’s a number of products on the market. Selfish plug: Paddle has a tool called Profitable Retain that helps with this. So that may be a good fit. I think some of it just depends on your existing infrastructure. The billing system you’re using probably has some basic things out of the box, and then, obviously, companies may be doing things internally. So, I encourage folks to check out Retain if that’s helpful, but your billing system may have some things out of the box as well.
With anything related to payments specifically, people are afraid of experimentation; people are afraid of making it too complicated or breaking something. I think some of the numbers you showed are strong enough reason to get over that fear, What else would you say to those people?
I think the thing to remember here is everything I showed you here is a game of inches. Anyone has a thousand different priorities product constraints, and limited engineering resources.
One thing I’d encourage teams to think about is to aim for one experiment a quarter. Standard hypothesis and track your results. If it works great, fold it into the default experience. If it doesn’t, kill it. But that way, you build this muscle of running experiments and making it better.
Suddenly, you look back after two years, and you have a dozen different things, and you have something closer to what I showed you today. Alternatively, nothing happens, nothing gets prioritized, and you are where you began.
It is intimidating, but I would recommend folks think about this as an ongoing process. Very rarely, one of these things is a silver bullet. It’s going to require stacking a number of these interventions on top of each other to ultimately get to where you want to be.
One thing that I found interesting was thinking about this right upfront in terms of your plan terms and the length of the plan. How often you see people experimenting with that, and how impactful do you think that it really is to think about it? I guess term length is one lever, pricing is another lever; how important is it to think about that on the regular?
Yeah, when I think about me as a buyer, right, and I’ve bought a bunch of SaaS over the years, and what’s like an amazing buying experience, the number one thing I want to avoid is buyer’s remorse.
Especially if I have a complicated procurement process and I gotta get through a bunch of internal hurdles. So, as a seller now, I want to make it as easy as possible for buyers to buy my product–especially if I believe in the value proposition.
If I know that my product is going to add value to you and your team, I should remove as much friction as humanly possible.
That’s why I think not only in the PLG motion but for sales assisted; we get into this, let’s talk about terms and payment methods and invoicing terms, and we get into all this complicated stuff, which I understand needs to happen at some point.
But most people just want to get in and play with the tool and try it and make sure it gets value, and that’s why I think month-to-month is such a hack for enterprise products because it reduces that risk considerably so that people can try it.
Then, two to three months in, you’ve proven that value, and it becomes a no-brainer. We have folks coming to us saying, “Hey, can we get a better rate if we upgrade to annual?” And the answer is, of course, right, because you want that relationship.
So I’d say, think about if this is remotely adding friction to your buying process, think about delaying that until after the sale. This is one of many levers you have to work with and find a win-win kind of relationship with your customers.
Cool, Neel. Your timing was impeccable. We’re pretty much there. Again, I want to put up this free retention audit offer from the team at Paddle. Reach out to firstname.lastname@example.org to take advantage of that. That’s the best way, Neel?
That’s correct. Yep.
Cool, and if people want to get in touch with you, I guess email’s an option. Anywhere else they can follow you, learn more about what you’re up to?
That’s perfect. Yeah, anytime if you want to jam on SaaS, data, retention, billing, payments, whatever, happy to help and looking forward to chatting with you guys.
Awesome. Thank you for joining. Speakers like you are what make this event a success. Really appreciate you being here. Everyone listening, definitely take Neel up on his offer to get in touch. Thank you for being with us thus far.
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