In the fast-paced business world, renewal rates for subscription-based Software-as-a-Service (SaaS) companies, have become an increasingly pressing concern. Tightened budgets, changes in contract terms, downsizing, rightsizing, and a growing skepticism about technology utilization have all contributed to the challenges faced by SaaS companies when it comes to retaining customers. A recent metric surfaced by Paddle’s ProfitWell B2B SaaS Churn Index showed an increase in SaaS churn of almost 8% between April and May of 2023. It’s safe to say that alarm bells are starting to sound across the SaaS community.
Let’s jump into the top factors impacting SaaS renewals and discuss strategies to overcome these hurdles.1. Tightened Budgets: The Reign of Fiscal Prudence
One of the primary reasons renewals have become more challenging is the shift towards tighter budgets across industries. Companies are increasingly scrutinizing their expenses and seeking cost-saving opportunities. Consequently, SaaS providers must take an active role in renewals, as the expectation that one will automatically happen, is no longer a viable strategy. Eliminating recurring costs are some of the easiest ways for companies to tighten a budget so it is more important than ever to keep an active, productive dialogue with the customer.2. Changes in Contract Terms: A Cause for Uncertainty
As businesses become more cautious about their SaaS investments, contract terms are being subjected to increased scrutiny. Organizations may opt for shorter contract durations or seek flexible terms to avoid long-term commitments. SaaS providers must adapt by offering more transparent and customizable contracts, aligning pricing models with customer needs, and focusing on delivering value throughout the contract period. Furthermore, this means the back-office/accounting and front-office/sales need to be coordinated to deal with an increase of diverse contract structures from customization.3. Downsizing and Rightsizing: Navigating Organizational Changes
Downsizing or rightsizing initiatives can have a significant impact on SaaS renewals. When companies undergo structural changes, they may reevaluate their software requirements and potentially reduce the number of licenses or switch to more cost-effective alternatives. SaaS providers must actively engage with their customers, understand their evolving needs, and offer scalable solutions that align with changing organizational dynamics. It is better to adapt to a customer than to lose a customer entirely.4. Technology Utilization Concerns: Bridging the Adoption Gap
Another obstacle faced by SaaS providers during renewal periods is the increasing concern about the effective utilization of technology. Organizations are keen to ensure that they are fully leveraging the features and capabilities of the SaaS solutions they have invested in. If an organization feels they are paying for features they do not know how to use or have no use for, this can impact the likelihood of a renewal. SaaS providers can address this challenge by offering comprehensive training and support resources, regular check-ins to assess adoption and utilization, and proactive engagement to address any concerns or gaps.5. Building Strong Customer Relationships: The Key to Renewal Success
To navigate the challenges surrounding renewals, building strong customer relationships is crucial. SaaS providers should prioritize proactive and transparent communication, establishing themselves as trusted partners rather than mere vendors. Regular touchpoints, personalized interactions, and a deep understanding of customer pain points enable providers to anticipate and address issues before they impact the renewal decision. A study from Bain notes that as few as 22% of B2B companies consistently measure and act on their customer’s experience. To set your business apart from the rest, building up analytics on your customer behavior is the best way to build informed decisions.6. Demonstrating Ongoing Value: Delivering Results
Ultimately, the success of SaaS renewals hinges on the ability to consistently demonstrate and increase value throughout the customer's journey. SaaS providers should actively track and measure key performance indicators, share success stories and case studies, and provide data-driven insights that highlight the positive impact of their solutions. Emphasizing a strong customer success program can go a long way in ensuring renewals and promoting long-term customer loyalty.
Actions to take if you find yourself facing a wave of uncertain renewals
- Heighten awareness around key dates in your customer contracts. Renewal dates, cancellation notice dates, anniversaries, and other milestones.
- Track customer behavior, usage, and adoption to identify at-risk customers
- Increase and be proactive with your communication around new or improved functionality, services, and value
- Add value without added cost to customer. Think increased functionality, training courses, newsletters, and insights about their business
- Be willing to adjust payment plans to help them continue use of your services
If you want to see how Younium can help you overcome these challenges and secure your SaaS renewals, request a demo today.