How much does user retention impact valuation?

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

Growth Strategy🕑 Reading Time: 0 Minutes

Consistently retaining customers is an important characteristic of any successful SaaS business, and an entire industry, Customer Success, has sprouted up to help SaaS executives do just that. However, knowing what a “good” retention rate is for your individual SaaS company remains difficult to pin down.

User retention has been a hot topic in the tech industry as of late. But how does user retention really impact valuations, especially for new startups?Better User Retention Means an Increase in Valuation

User retention is key when it comes to valuing a company. A company’s ability to retain customers over time is directly related to its long-term value. The longer customers or users are retained, the more likely they are to be inextricably linked with the product or service offered – resulting in higher lifetime customer or user value (LCV) which impacts your bottom line and leads to greater returns on investment.

Increased Referral Potential With Better User Retention

When companies maintain high user retention rates, they also generate more referral potential with those retained clients. This means that those customers who have stayed loyal are more likely to spread positive word of mouth about your product or service, helping you acquire new customers through social recommendations. This spike in referral potential also helps your company grow faster and thus increases your valuation due to higher quality customer acquisition costs.

Reduced Time Spent Marketing New Customers

The importance of user retention is not only reflected in LCV but also in reduced time spent marketing and acquiring new customers – meaning increased efficiency within your organization that translates into lower costs overall and better profitability indices for your valuation metrics. By investing resources into retaining existing customers rather than spending money recruiting new ones, companies can ultimately increase their value significantly over time because of lower turnover costs associated with established customer bases.

Customer Experience Impacts Your Valuation

Highly satisfied (i.e., retained) users become advocates for brands they trust – making them repeat purchasers of services and products provided by you! As a result, quality customer experience becomes an incredibly important factor when it comes to increasing valuations across industries – so while great user retention numbers may bring in bigger returns initially, Quality Service is what truly boosts its long-term value over time when it comes to successfully selling businesses later down the line!