retention not churn header

Why Retention Has Stolen Our Attention, Not Churn

04 September 2020

Compared to the previous three startups I launched, Leadfeeder’s early-stage growth is unique: It grew from 0-150K in monthly recurring revenue (MRR) without the help of a sales team

Using a combination of inbound marketing and paid ads paired with the powerful sales tools, we created a “hands-off” automated system that generated leads for us. 

(Considering that Leadfeeder specializes in supporting outbound sales teams, this is quite ironic, isn’t it?)

We’ve come a long way since then. Leadfeeder is now 40,000+ users strong, has a cracking outbound sales team, and is hitting healthy MRR numbers.

I'm often asked: "Do you still use the strategies and tactics from Leadfeeder's launch today?"

Yes, we do. But...

With serious plans for growth in mind, we’re doubling down on a metric that's been guiding our path to success from day one: retention. Here’s why.

Note: Want to know where your leads are coming from? Try Leadfeeder's 14-day trial to better understand your buyer intent data.

Retention facilitates growth 

With over a decade of experience in SaaS, I’m still astonished at the speed at which SaaS companies rise and fall. This applies to the emerging tech, evolving marketing practices, shifting user expectations and yes, even the longevity of SaaS businesses in general. 

When they analyzed the life cycles of 3,000 software and online-services companies, the Mckinsey group confirmed that SaaS companies, on average, grow faster and die quicker compared to companies in more traditional industries. 

This precarious lifecycle makes constant growth a prerequisite for both success and survival.

Among the many things we track, the top two metrics we currently prioritize at Leadfeeder are:

  1. Growth 

  2. Retention

At Leadfeeder, we aim for up to 10% MRR growth — which roughly translates to doubled revenue numbers in the span of a year. It’s an ambitious pace, one that we’re able to maintain due to focusing on retention, not churn. 

While we don’t ignore churn per se, retention is the metric that earns our attention.

This is because churn is an “alarm” metric. 

It signals a problem and alerts your attention to it, but fails to actually help diagnose and explain why you’re losing users. 

Retention, on the other hand, paints a more complete picture of why churn occurs. 

It measures how successful you are at acquiring new users, and your ability to satisfy and keep them. 

If your user base is in a  “leaky bucket” state, churn simply shows that you’re leaking. 

Retention, however, points out the hole in your customer journey and presents an explanation as to what caused it. 

Retention beats acquisition

When I tried to expand Snoobi’s sales team and scale internationally, the costs of hiring and running a team skyrocketed customer acquisition costs (CAC) to the point of cannibalizing customer lifetime value (CLV). 

This taught me a valuable lesson that’s influenced Leadfeeder’s launch:  

While necessary during the startup stage, aggressive focus on acquisition can harm (CLV) and hurt profits.  

We invested upwards of €500,000 in Leadfeeder during the first year to not only develop, but also market a great MVP product to people who would love to use it. 

Fortunately, the initial investment paid off, and helped us follow a high growth business model that resulted in an ideal 3:1 ratio of LTV to CAC

Once you’re stable and out of the ”hustle” or aggresive acquisition stage, focusing on retention can cut acquisition costs and double the growth of your bottom line. 

Retention benefits every aspect of your SaaS

Leading with retention in mind has a trickle-down effect on every department.

Sure, you need a great product to attract users. But, to retain them, you need to habitually hook them with smooth user experience, and provide customer support that keeps people coming back and willing to refer you via word-of-mouth.

Speaking of word-of-mouth, we’ve experienced significant growth through referrals. 

Users can earn time in Leadfeeder premium by reviewing or referring us. This has not only attracted more users but also catapulted our credibility on sites like G2 and Capterra.

A retention-first focus has even provided user experience insights. Using heatmap and analytics, we found that users were encountering friction while browsing our pricing pages.

After discovering this, we improved user experience by making plans clickable and revamped the pricing page. This boosted the sign-up conversion rate by 30 percent and generated $11,000 in MRR.

Retention is also the main reason why Leadfeeder has a customer success team. Whose aim isn’t to generate sales, but maintain high levels of satisfaction among our existing user base.

While their actions aren’t directly tied to revenue, they give the company confidence to grow without pausing to correct alarming cases of churn.

The bottom line: retention results in growth

In the marketing field alone, the number of SaaS companies has more than doubled from (3500-7040) in the last 3 years. Competition is continuing to increase and users have more options to choose from than ever before.

To thrive, SaaS companies must give retention the respect it is due to moving forward. This will pre-empt high churn, inspire loyalty, and deliver drastic departmental improvements across the board.

Note: Want to know where your leads are coming from? Try Leadfeeder's 14-day trial to better understand your buyer intent data.

Pekka Koskinen
By Pekka Koskinen

Pekka has been working on web analytics and sales intelligence for 20 years. He grew Leadfeeder as CEO from zero to 10M+ EUR of annual revenue and 140+ employees since 2012.

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