Ashish Srimal, a successful SaaS entrepreneur, and CEO of Ratio, has extensive experience in building and leading SaaS startups and large SaaS businesses. In the B2B SaaS industry, the average customer acquisition cost (CAC) is $239, with some companies paying as high as $1,450. In order to keep CAC low and maintain a healthy customer lifetime value (CLV) to CAC ratio, companies prioritize customer retention. Downselling has become a popular strategy to retain churn-prone customers who may be leaving due to the high cost or underutilization of their current subscription plan.
While downselling can help to maintain the CLV:CAC ratio, it ultimately results in lower customer lifetime value (CLV) as companies make less money from the same number of customers. In order to reduce downsells, businesses need to proactively address this issue during SaaS renewals. One strategy is to focus on continuous engagement with customers by utilizing various channels such as product features, email, social media, and other media. Prioritizing net retention through exceptional customer experience is also crucial, as companies that invest in customer success and support can see a net retention rate of over 120%.
Implementing the RADO segmentation framework can help companies better allocate their efforts and resources to reduce downsells. By retaining accounts with high revenue growth potential and developing accounts that are ripe for expansion, businesses can keep their customers satisfied and prevent downsells. Tracking both lagging and leading indicators can help predict and engage with at-risk customers before they decide to downgrade or churn. Offering flexible payment options through embedded financing solutions such as buy now, pay later (BNPL) can also help companies avoid downsells by providing customers with financial flexibility.
Ultimately, the key to reducing downsells lies in prioritizing customer success and experience. By continually engaging with customers, offering exceptional support, and providing flexible payment options, businesses can convert potential downsells into opportunities to strengthen customer relationships without compromising on revenue. As SaaS companies navigate the competitive landscape, strategies that focus on customer retention and value delivery will be essential for long-term success in the industry.
