Customer Loyalty For SaaS- Everything You Need to Know

Companies that are proactive about customer loyalty will eventually build a pool of die-hard fans. These customers will be committed to the brand and not easily swayed by availability, price, or any juicy offer from competitors.

This article is for you if you’re interested in being that kind of company. There’s no magic wand to keeping customers engaged and loyal, but we’ll go over proven best practices.

TL;DR

• For SaaS companies, customer loyalty is the measure of a customer’s willingness to continue renewing their subscriptions.
• Loyal customers don’t only buy repeatedly from you, they also refer others to your company and easily participate in your feedback surveys.
• Customer loyalty increases account expansion opportunities, customer retention, and word of mouth, among other things.
• Account expansion is easier with existing customers than with new users.
• Loyalty and retention aren’t the same. Retained customers may still be with you just because they haven’t found other alternatives, but loyal customers aren’t actively searching.
• Customer stickiness happens when customers renew their subscriptions only because you provide a higher transactional value. Stickiness is not loyalty, but it’s a good stepping stone.
• Metrics to measure customer loyalty: NPS, Customer Loyalty Index (CLI), retention rate, customer lifetime value, and negative churn.
• Types of loyal customers: happy customers, price-loyal customers, loyalty-program and freebies loyal, convenience-loyal, and truly loyal customers.
• Loyalty programs make brand ambassadors out of ordinary users. Create a customer loyalty program by rewarding users for key actions or milestones reached.
• Customer loyalty programs could be referrals, points-based, or mission-driven.
• Personalization and great customer service through on-demand resources are tactics you can use to increase customer loyalty.
• Conduct NPS surveys and reach out to detractors. Aim to convert them to loyal customers.
• Userpilot and Mixpanel are incredible SaaS tools that can help you nurture and analyze customer loyalty.
• Get a Userpilot Demo and see how easy it can be to build customer loyalty with contextual in-app engagement.

What is customer loyalty?

Customer loyalty is the measure of the emotional bond between a brand and its customer. Loyalty is what makes a customer consistently do business with a particular brand, and it stems from customer satisfaction.

Loyal customers don’t go about searching for alternative solutions. They also tend to be patient when technical issues occur, and can happily provide feedback if you ask.

Why is customer loyalty important?

Your best bet to surviving the competitive SaaS space is to have many loyal customers who don’t just stick with your brand but are ready to become advocates as well.

Here are some benefits of customer loyalty:

Grows word-of-mouth referrals

Think about the product or service you enjoy right now and absolutely can’t do without.

How many times have you mentioned it to friends or colleagues?

If you love the brand, you’d have told at least one person about it. It’s the same with your loyal customers. Word of mouth grows faster when customers are loyal, and because we all trust our friends, this tends to be the most effective form of marketing.

Increases account expansion opportunities

It’s always easier to upsell someone who’s already satisfied with the value you provide.

They’ll gladly upgrade their subscriptions if it’s something they need at the moment. Account expansion is generally harder with new accounts or people that aren’t completely satisfied with your brand.

Retaining customers is cheaper than acquiring new ones

No matter how you look at it, customer acquisition will always be more expensive than retention.

Loyal customers are easy to retain—just keep making them happy. The result is more customer satisfaction and a higher LTV.

Customer loyalty vs customer retention

Customer loyalty and retention are sometimes used interchangeably. They may appear similar, but they’re not the same.

Retention means a customer has agreed to renew their subscription, but it doesn’t say anything about their commitment to your brand. Retained customers can still be searching for alternative solutions.

Loyalty is beyond just the money. Customers in this category have developed a special affection for your brand and aren’t ready to leave anytime soon.

Customer loyalty vs customer stickiness

Both customer loyalty and stickiness are tested in competitive environments.

Stickiness is when customers keep buying your brand because of a higher transactional value. In other words, they renew their subscription only if you’re offering something the competitors aren’t.

This could be anything from price slash to better features.

Sticky customers don’t have an emotional connection with the brand. They can leave anytime if a new kid comes on the block with better value for money.

Customer loyalty takes time because trust is expensive.

However, customer stickiness can be a good foundation for loyalty. Consistently provide the best transactional value and users will start getting attached to your tool.

How do you measure customer loyalty?

Investing in customer loyalty will not come easy, but the long-term pay is huge. A good place to start is by identifying what the current loyalty score for your business looks like.

These metrics and analytics will help:

Net promoter score (NPS)

Net Promoter Score is a standard measure of customer satisfaction and brand loyalty. NPS surveys involve an 11-point scale asking customers how likely they are to recommend a business to friends and colleagues.

Users that answer 9 or 10 are considered promoters—most likely to promote the business. Scores 7 and 8 are passives. Those that choose these scores are happy with your tool but not sure they want to recommend it.

Detractors are those user segments that choose 6 or below. They aren’t likely to spread the word about you and tend to be dissatisfied customers at the brink of churn.

A high promoter score shows high customer loyalty and vice versa.

Customer Loyalty Index (CLI)

CLI asks three questions that take NPS, repurchasing, and upselling to give a more coherent score.

The questions are something like these, asked on a 6-point scale:

The customer loyalty index is determined by taking the average of all three scores. Notice, from the image above, that the numbers on the scale translate to different scores. Number 1 stands for 100 and 6 for 0.

Retention rate

Retention may not be the true test of loyalty, but it’s a starting point. You can’t have loyal customers if you don’t retain them first.

Frequently tracking your retention rate will enable you to see how well your product is performing and what changes you might need to make.

The customer retention rate is easy to calculate:

Customer lifetime value

Customer lifetime value is one of the leading indicators of customer loyalty for SaaS because the numbers say it all.

LTV is simply the total revenue an average customer generates over their lifetime.

An increased LTV is a good sign of loyalty.

Companies can boost their LTV by developing customer relationships and seizing account expansion opportunities.

Negative Churn

Negative churn happens when your current customers upgrade their subscriptions or pay for additional services. It makes your recurring revenue grow even without the addition of new customers.

This is a good sign of loyalty as customers must find your brand worthwhile to want to pay more.

Negative churn is calculated using this formula:

Your Net MRR will be negative when expansions outweigh cancellations and downgrades.

Different types of loyal customers

People are loyal for various reasons, but it’s relatively easy to group them into six distinct loyalty categories.

Happy customers

Happy customers are satisfied with your product and the overall brand experience. However, they can easily leave your brand for another that promises a better version of what they enjoy with you.

Price-loyal customers

They’re with you for the price and will consider leaving when you make upward reviews of your prices. They can also change brands when a similar competitor comes along with a better offering.

Loyalty program and freebies loyal

Similar to price-loyal customers, these people are with you for the discounts and benefits from your loyalty program. You have their patronage provided they continue to get value from your reward system.

Convenience-loyal customers

Convenience-loyal customers aren’t after price or any loyalty program. They want the ease of business and wouldn’t even mind paying extra.

These customers will stay with you rather than switch to competitors if it’s easier to do so.

Truly loyal customers

These customers love your brand. They happily advocate for you and willingly participate in your feedback surveys. Truly loyal customers are the least likely to stop using your product.

What is a loyalty program and how does it help you to drive customer loyalty?

A loyalty program is a retention strategy used to drive repeat business by offering discounts and promotions based on customer activities.

Loyalty programs are designed to make customers keep returning to do business—mainly because they now have something else to look forward to outside the product.

Loyalty programs will help you learn about your customers and deepen your relationship with them.

Types of customer loyalty programs

You can be as creative as you want with your loyalty program, provided you’re giving customers value in exchange for their long-term commitment.

Below are the popular types to get your creative juices flowing.

Point-based loyalty programs

This is probably the most used customer reward system, and for obvious reasons—points are easy to earn and redeem.

Its popularity also means customers won’t find it hard to understand because they must have used it with other brands.

Consider the example below if you’re wondering how to get started with point-based loyalty for SaaS.

How Evernote rewards customers:

• You send an invite to a friend to sign up for the tool. You both earn 10 points if they accept the invitation.
• The points earned can be used to sign up for a premium plan. 10 points are worth 3 months of a premium plan.
• You get 5 points if the person you invited upgrades to a premium plan.

Loyalty points can generally be used to reward loyal customers through discounts, giveaways, free account renewals, etc.

Mission-driven loyalty programs

Another powerful way to drive loyalty is to have a strong cause and invite people to join you.

Each purchase they make will feel like a contribution to society, and everyone wants to make the world a better place, so bingo!

However, you have to be sure your mission is something that aligns with many people.

Here’s an example:

Everyone interested in climate change and how deforestation is affecting our planet will be key to this mission.

Another popular example is the Russia–Ukraine conflict in early 2022. Many global brands supported Ukraine, and it was a mission that millions around the world believed in.

Referral programs

Referral programs motivate customers to bring others and earn rewards in exchange.

This system can be used to turn satisfied customers into advocates. You can also use referral programs on new users, provided the offer is something they’ll want.

Dropbox did this and got crazy results. They rewarded users with an additional 500MB of storage for every new person invited. The result was 3900% growth in 15 months.

Asana took it a notch higher, rewarding new users with a 10% gift card when they purchase the annual plan.

Existing customers have access to a referral link and receive 10% when the accounts they refer make the first purchase.

Build customer loyalty with these in-app retention tactics

As mentioned earlier, retention is a key step to customer loyalty.

Start implementing retention strategies from the time a user signs up, and you’ll have better chances of turning many of them into loyal customers.

The four retention tactics discussed below will give you a head-start.

Personalize the customer experience

Go beyond minimum viable onboarding to provide repeated value to users through secondary onboarding.

Do this by segmenting them and triggering relevant experiences for each cohort.

Understand what’s driving customer loyalty and replicate

Track product usage and look at what parts of the product loyal customers use most.

Aim to identify what brings them value the most and replicate their paths to success to your least engaged users.

Provide great customer service with an on-demand resource center

Customers don’t like waiting to get the support they need. Similarly, your support agents probably don’t enjoy repeatedly answering the same simple question.

The win-win situation, in this case, would be creating a resource center.

Your resource center should be embellished with various self-help guides, including onboarding videos, knowledge base articles, interactive walkthroughs, webinars, etc.

This way, users will find their answers fast and won’t get frustrated. Customer satisfaction will increase, and so will your loyalty metrics.

Reach out to detractors and turn into brand advocates

Remember what we said about detractors earlier?

They’re that dissatisfied customer segment that couldn’t care less about recommending your product. But they’re humans, and their perception of you can change.

Reach out to them, asking the reason for their dissatisfaction.

You’ll often find that their problems can be solved with a little more attention. Pushing through with it will enable you to retain and turn many of them into loyal customers.

Tools for driving customer loyalty

Specialized third-party tools will enable you to nurture users and track how well your loyalty strategies are working. Userpilot and Mixpanel are good for these.

Let’s see how they can help.

Userpilot for nurturing loyalty with in-app communication

Userpilot is a no-code tool that enables you to build flows and engage customers at different milestones in their journey.

Its extensive list of UI elements—modals, tooltips, hotspots, etc.—will give you full flexibility to create product experiences as you desire.

An example of a feature announcement created in Userpilot:

Mixpanel for product analytics

Mixpanel is a product analytics tool that enables you to collect and track in-app user analytics.

The tool has features to transform the data obtained into useful insights for decision-making. You can also use it to build user flows, funnels, etc.

Conclusion

Customer loyalty is not easy to come by, but loyal customers will turn your business around. They’ll increase your revenue and bring customers to you. By studying them, you can also learn to attract similar people.

The first and most important lesson in driving customer loyalty is to build a product that people will love. Then invest in delivering fantastic customer experiences. Loyalty programs also help, but the first two should be top priorities.

Remember we mentioned the importance of in-app communication in nurturing loyal customers? Userpilot can help with that. Book a Demo to learn more.