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How SaaS Companies Can Master Customer Engagement

Customer engagement is critical for SaaS companies. We walk through how to leverage it to boost growth.

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Why customer engagement is the lifeblood of SaaS companies

Subscription-based businesses like SaaS rely on recurring payments to stay alive. The successful ones use a customer engagement strategy to keep customers using their software month after month.

Customer engagement is all about making it as easy as possible for customers to do business with you. As a result, you win their loyalty and gain consistent, predictable revenue. Loyal customers may also upgrade to premium plans, which increases their lifetime value.

But even long-term users can leave for the competition if they become dissatisfied or find alternatives that offer better service. That’s why customer engagement is an ongoing effort that spans the entire customer journey, not a series of one-time activities and promotions.

5 customer engagement metrics that SaaS companies need to track

These five SaaS customer engagement metrics indicate how well (or not) you’re satisfying customers and convincing them to keep using your software.

Customer Effort Score (CES)

Gartner found that 96% of customers who have to exert a lot of effort to get help from a company admit to being disloyal. Among customers who had to exert minimal effort, only 9% said they were disloyal.

By tracking CES, you’ll know whether or not you’ve created an effortless customer experience, which is crucial to keeping users engaged and satisfied.

How to calculate customer effort score:

Ask customers, “How easy was it for you to solve this problem/complete this action?” You could also ask them to rate how much they disagree or agree with a statement like, “[Company] made it easy for me to resolve my issue.”

You then ask them to choose their answer from a numeric scale, which represents sentiments ranging from “very difficult” or “strongly disagree” to “very easy” or “strongly agree.”

  • Formula: sum of effort ratings ÷ total # of responses

Churn Rate

Churn rate measures how many customers abandon your software in a given period. Treat this metric as a starting point for investigation and experimentation. If you have a high churn rate, you’ll want to determine why and what you need to do differently. It helps to compare your churn rate with industry benchmarks, as average SaaS churn rates vary widely, ranging from 1% to 17%.

How to calculate churn rate:

  • (# of users at the start of a month - # of software users at the end of the month) ÷ # of users at the start x 100

You can also calculate by quarter, year, or custom period

Customer Lifetime Value (LTV)

LTV measures the total potential revenue you can expect to earn from a customer throughout their lifetime. Use LTV as a benchmark for deciding how much to spend on customer acquisition and retention while maintaining a decent profit. A good rule of thumb is to spend no more than one-third of LTV on customer acquisition.

How to calculate customer lifetime value:

  • average revenue per account (ARPA) ÷ monthly churn rate

Different types of customers have different LTVs—think SMBs vs. enterprises or B2B vs. B2C. On top of calculating averages across your customer base, you can also narrow down LTV by customer segment. This way, you know how much to spend on marketing and user engagement for each type of customer.

Daily/Monthly Active Users (DAU/MAU)

The active users metric tells you how many unique users your software has in a day or month. This metric becomes more useful when you create user segments, so you can tell how much of the DAU/MAU is driven by new customers and by returning ones.

You can tie this metric more closely with customer engagement by setting a minimum criteria for what it means to be active. For example, for a time-tracking software, a user should not only log in but also track time for at least one activity to be considered active on any given day.

How to calculate average active users:

  • Total # of users per day ÷ # of days

  • Or Total # of users per month ÷ # of months

Week 1 Engagement

Given the competitiveness of SaaS upfront pricing as well as the prevalence of free trials and freemium models, customers won’t have much to lose by churning in the first week if they’ve had a poor onboarding experience with your software or don’t see its value. You can spot such customers by tracking week 1 engagement.

You don’t need a formula for this metric. Instead, you track how many times a user logs in or completes certain actions on your software during week 1. You can also measure the duration of use per session.

5 customer engagement solutions for SaaS companies

Live chat solutions

With live chat, you can be available 24/7 to help customers solve their problems. This way, you reduce the effort customers need to exert to resolve their issues. Deploy live chat in your app with Intercom or integrate it with Slack using Chatlio.

Discover more live chat solutions here.

Email marketing solutions

Email is useful for sending personalized messages for onboarding, promotions, user education, feature updates, and more. Scale your email campaigns with SendGrid or automate custom messages based on event triggers with Drip.

Discover more email marketing solutions here.

Personalization solutions

Give customers what they need at every stage of their journey by personalizing your engagement campaigns. Create tailored onboarding experiences with Appcues or choose marketing channels based on customer preferences using Engage.

Discover more personalization solutions here.

Feedback & survey solutions

Dig beyond metrics to understand why customers feel and act the way they do. Discover what new features each customer segment wants with Savio or trigger customized surveys in various channels using InMoment.

Discover more customer feedback and survey solutions here.

On-page tracking & analytics solutions

Analytics and on-page tracking tools help you learn how customers interact with your software, spot workflows that cause frustration, and identify features that certain customer segments use more than others. Get 24/7 alerts on anomalies in customer usage data with Adobe Analytics or detect rage clicks using FullStory.

Discover more on-page tracking and analytics solutions.

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Frequently asked questions

SaaS businesses can improve customer engagement by learning what keeps people using their software and what causes them to churn. Companies can then create or modify user experiences based on these insights.

Engaged customers provide recurring revenue, which is essential for SaaS companies to stay afloat.

Twilio Engage makes customer engagement more effective by personalizing every interaction. It can do this because it’s built on top of Twilio Segment’s customer data platform, which creates and updates unified customer profiles in real-time.