Retention Rate and Sales Growth

For the past few weeks I've been fiddling with our pricing strategy to better align it with SaaS model. Defining how to charge for your services has profound effect on business health, so I had to include revenue projections in the pricing proposal. As a consequence I spent quite some time contemplating what KPIs should we use and finally settled on retention rate and sales growth as the two most important metrics with all other indicators derived from them. Retention rate is important because every lost customer must be replaced with a new customer just to keep up the current level of revenue. And retaining customers is in most cases much cheaper than attracting new ones. Sales growth on the other hand is what controls how fast your business will grow. If your ambitions are low, you can keep your sales constant and concentrate on providing good service. But if you're set to conquer the world, you must grow your sales fast. That's why in later venture rounds the majority of funding goes towards building sales.

Retention rate and sales growth are not independent variables. Loyal customers provide ample opportunities for up-sells and cross-sells and, even more importantly, they are a great source of referrals. On the other hand you can (temporarily) boost your sales just by empty promises thus acquiring customers that are impossible to retain. So product, engineering, and support teams are helping sales people by keeping existing customers happy, while sales people can influence customer satisfaction by pitching customers who are a good fit for your services. One metric for each of your teams therefore suffices since the interdependence of both metrics makes sure that interests of the teams are aligned with the overall business goal of sustainable revenue growth.

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