How B2B Product Management Drives Business Growth by Improving Customer Retention
In a separate article, I had discussed the 6 levers of growth that a product manager has at their arsenal. When we say growth, we mean the growth of your business i.e revenue. Which lever is relevant depends on the stage of your company and your competitive position in the market.
In this article, we will focus on one such lever, retention. We will :
Why is retention important?
One of the most important principles in a SAAS business is that acquiring new customers is more expensive than retaining existing ones because it involves substantial upfront costs associated with marketing, advertising, sales efforts, and customer onboarding. These expenses can be significant, especially in competitive markets. In contrast, retaining customers often requires comparatively lower investment as it involves nurturing and maintaining relationships with the customer base you’ve already acquired and ensuring product provides value. Existing customers are already familiar with your product or service, which means they are more likely to make repeat purchases and can provide a steady stream of revenue over time.
Let’s look at it mathematically.
Imagine your company has a target of 30% growth year over year. If your starting ARR (Annual Recurring Revenue) is $ 10 M per year, then by the end of the year ARR should be $ 13 M.
The easiest would be to keep the existing customers who will continue to contribute $ 10 M in ARR and you add $ 3 M ARR from new customers.
However, during the course of the year, any of the following can happen -