Drivers of Customer Retention in a Software-as-a-Service setting at SAP
Where supply chain management and data science meet, interesting questions arise. In our Data2Move Research Stories, you’ll find out how students have managed to answer them. This time: Maartje Schermer’s master thesis on the Drivers of Customer Retention in a Software-as-a-Service setting at SAP.
Where it started
The rise of cloud-managed services in the B2B software market is forcing software providers to change their business model, adopting a model named Software-as-a-Service (SaaS). In the Saas model, businesses no longer buy a software product for a fixed price, but buy a software service for a subscription fee – much like consumers using Spotify instead of buying CDs. Despite the importance of customer retention in such a service-setting, little to no research is conducted on the drivers of subscription renewals. Therefore, it was Maartje’s job to close the gap in scientific literature by assessing drivers of customer retention in a Saas-context.
To answer her research question, Maartje conducted a literature review and came up with possible drivers of customer retention. In her research she investigated three drivers, namely: the length of the customer-provider relationship, the breadth of the relationship (number of products that a customer has) and the after-sales services. For each driver she applied a logistic regression using a data set of 8902 renewal opportunities between 2018 and 2020.
With her research Maartje observed that the length of the relationship did not change the probability of renewal. The second driver, the breadth of the relationship, showed a positive relation with the probability of renewal. However, the effect differed between different products. For the last investigated driver, the after-sales services, the results showed a positive effect on the probability of renewal. In other words, the more interactions between the customer and provider, the higher the probability. According to Maartje, the probability increased even more when there were more service interactions between customer and provider in the final phases of the contract.
For SaaS providers aiming to increase their retention levels, Maartje advises that management should give long-term customers the same attention as relatively new customers since there is no relation between the length of the relationship and the probability of renewal. Moreover, she advises that management should focus on selling multiple products to existing customers, to broaden the relationship. However, as stated before, not all products have the same effect. Further research is needed to fully understand the cause of these differences. Maartje also recommends increasing the number of interactions with the customers and guide them through the renewal process, especially in the final phase of the contract.