How to Achieve High Net Retention in B2C SaaS: Overcoming Challenges and Maximizing Growth

Read time: 4 minutes

Happy Monday!

In today’s essay, we'll dive into the unique challenges faced by B2C SaaS businesses in maintaining high net retention rates and explore the intricacies of this market.

Achieving sticky net retention rates is a coveted goal. While this may be a common sight in the B2B SaaS world, the story takes a different turn when we shift our focus to B2C SaaS.

Understanding the B2C Landscape

B2C SaaS companies cater directly to individual consumers, and their Average Revenue Per Account (ARPA) typically hovers around or below $25 per month.

This niche operates under conditions that significantly impact their net retention rates.

It’s hard for B2C businesses to have high net retention rates

According to Chartmogul - In B2C (companies with ARPA < $25 per month), churn is higher and expansion is lower.

Churn is higher because of a lot of knee-jerk buying by the individual customers, and expansion is lower because there are fewer upselling and cross-selling opportunities.

1. In contrast, in B2B SaaS, it’s table stakes for you to have net retention near or over 100%.

2. Nearly half of SaaS businesses with an ARPA over $1k monthly have net retention over 100%.

Let’s dive deeper into the retention dilemma of B2C SaaS.

Higher Churn Rates

• One of the most prominent hurdles faced by B2C SaaS businesses is the prevalence of higher churn rates.

• Churn refers to the percentage of customers who cancel their subscriptions or stop using the service within a given period.

• In the B2C world, this metric tends to be on the higher side due to several reasons.

a. Impulsive Purchases

• Individual consumers often make impulsive buying decisions.

• Subscribing to a SaaS product without fully considering its long-term value.

• When the initial excitement fades, they might discontinue the service.

b. Varied Needs

• B2C customers have diverse and ever-changing needs.

• They might subscribe to a fitness app, cancel it after achieving their fitness goals, and resubscribe for different reasons.

• This cyclic behaviour contributes to higher churn rates.

c. Market Competition

• The B2C market is a crowded arena with numerous alternatives.

• Consumers can effortlessly switch to a competitor's product if they stumble upon a better deal or a more enticing feature.

Lower Expansion Opportunities

Unlike B2B SaaS, where upselling and cross-selling opportunities are abundant due to larger contract sizes and complex organizational needs, B2C SaaS businesses face limitations in this department.

a. Lower ARPA

• B2C ARPA typically falls below $25 per month, which means there's less revenue per customer to capitalize on.

• This makes it challenging to invest in upsell or cross-sell strategies.

b. Simplified Offerings

• B2C products often feature streamlined and standardized offerings.

• While B2B SaaS can customize their offerings to meet specific business needs.

• B2C SaaS products tend to follow a one-size-fits-all approach, leaving fewer opportunities for expansion.

Net Retention Rates in B2C

Given these challenges, achieving high net retention rates in B2C SaaS is undoubtedly an uphill battle.

Net retention, which factors in both expansion (upselling, cross-selling) and losses (churn), is a barometer of how effectively a business can grow from its existing customer base.

In sharp contrast to the B2B SaaS landscape, where net retention rates near or over 100% are expected, the situation in B2C is markedly distinct.

Shockingly, only a mere 2% of B2C SaaS companies with an ARPA less than $25 per month manage to reach net retention rates exceeding 100%.

How to Succeed Then?

Success for B2C SaaS businesses hinges on more than just retaining customers.

• It requires continuous adaptation to the ever-shifting consumer landscape.

• Deep understanding of consumer behaviour.

• Innovative product offerings.

• Strategies customized to address the distinctive challenges of the B2C market.

Takeaways

1. In B2C (companies with ARPA <$25 per month), churn is higher, and expansion is lower.

2. Higher churn rates resulting from impulsive buying decisions, the ever-changing needs of consumers, fierce market competition, and limited expansion opportunities create a unique set of dynamics.

3. Only 2% of SaaS businesses with an ARPA less than $25 per month have net retention rates over 100%.

4. In contrast, in B2B SaaS, it’s table stakes for you to have net retention near or over 100%.

5. Nearly half of SaaS businesses with an ARPA over $1k monthly have net retention over 100%.

That's it for today's article! I hope you found this essay insightful.

Wishing you a productive week ahead!

I always appreciate you reading.

Thanks,
Chintan Maisuria