Five Ways To Reduce Downselling During SaaS Renewals

This article was originally published on Forbes. You can read the original version here.

The average customer acquisition cost (CAC) for B2B software-as-a-service (SaaS) companies is $239, but it can be as high as $1,450. So, companies prioritize customer retention to lower the CAC and maintain a healthy customer lifetime value (CLV) to CAC1 ratio.

Downselling becomes a go-to strategy in this pursuit. It helps you retain churn-prone customers—especially when they're churning due to the high cost or underutilization of the ongoing subscription plan.

However, downselling isn’t a smart strategy when it comes to revenue. You’re essentially making less money from the same number of customers while keeping the sales and marketing budget the same. So, objectively, your CLV:CAC ratio stays afloat, but your CLV goes down. Put another way, although downselling may not impact gross retention, it does bring down net retention.

Five Ways To Reduce Downsells

Enterprises need to deal with downselling proactively. In this piece, I’ll share five ways to lay down the groundwork for reducing downsells during SaaS renewals.

For more insights on retaining customers, don’t miss these 5 proven ways to reduce churn during SaaS renewals to further strengthen your approach.

1. Embrace continuous engagement

In SaaS, customers pay for the service through a subscription model, either monthly or annually. This creates an ongoing loop in which, with each renewal, the process of keeping the customer informed and interested starts anew.

You need to map out crucial touchpoints during the customer journey and develop meaningful customer engagement strategies. This could mean building an omnichannel strategy that leverages content through your product, email, social media and other media. The goal is to always be at the top of the customers' minds. Another way is to ensure the customer realizes product value early into their usage so that product stickiness happens by default.

2. Prioritize net retention through an exceptional customer experience

Although gross retention and net retention are crucial SaaS metrics, net retention is more important from a revenue standpoint. An exceptional customer experience is important to keep your net retention rate (NRR) high. A study by McKinsey researchers showed that companies that invest in customer success and cultivate strong pricing and product support can see an NRR of over 120%.

There’s a concept of hunters and farmers in sales. Hunters focus on acquiring new customers, whereas farmers nurture existing relationships to enhance value. Farmers play a pivotal role in SaaS renewals by:

• Understanding Needs: They ensure customer satisfaction by tailoring solutions, leading to higher renewals.
• Providing Proactive Support: They solve issues early, maintaining a positive experience and reinforcing service value.
• Upselling And Cross-Selling: By recognizing customer needs, they introduce valuable features or products, boosting commitment and renewal likelihood.

Farmers' deep customer relationships and focus on value delivery are key to renewal success.

3. Implement RADO segmentation to better allocate efforts

I've found that high-growth SaaS companies pour at least half their revenue into sales and marketing. Strong SaaS companies make smart use of the RADO (retain-acquire-develop-optimize) framework to sharpen this spending, cutting down on downsell when it’s time to renew.

The "retain" piece of RADO suggests keeping the accounts in which the revenue growth opportunity is maxed out locked in with top-notch service and perks, keeping those customers too satisfied to cut back on services. On the "develop" side, SaaS companies must spot accounts ripe for growth and get in there with new tools and training before the renewal comes up. AWS re:Invent, for instance, plays a significant role in this aspect, offering immersive experiences where customers can deeply engage with AWS's services. 

This proactive move often leads to these customers expanding their subscriptions.

In both strategies, the goal is clear: Keep the big players happy and growing.

4. Track lagging and leading indicators to predict and engage at-risk customers

Being hands-on with analytics lets you identify at-risk customers to prevent churn or downsells. McKinsey experts recommend categorizing customer success metrics into three categories: lagging, leading and activity. Lagging and leading metrics help us predict at-risk customers.

Lagging indicators include direct revenue indicators, such as the renewal rate, upselling and cross-selling. Leading indicators measure the net promoter score (NPS), product usage, response time and other customer satisfaction metrics.

By tracking both these metric categories, you can implement the 90-60-30 customer engagement strategy on at-risk customers:

• Ninety Days Before Renewal: Analyze the customer’s product usage. Review the NPS to understand their product satisfaction. Schedule a check-in call to get product feedback.
• Sixty Days Before Renewal: Speak with key decision-makers about their investment, product usage and upcoming renewal. Help them integrate underused features into their workflow. This will help them get the full product value before renewal.
• Thirty Days Before Renewal: Resolve customer objections before renewals. Propose contract expansions (upsells or cross-sells) depending on their usage. Offer multiple methods for easy renewal.

5. Offer flexible payments through embedded financing

There are cases in which the customer is happy with your product but can’t afford it for various reasons. Economic downturns, increased annual contract values or high upfront costs are some of the reasons.

Instead of compromising on the CLV by discounting or downselling, going for an embedded financing solution such as buy now, pay later (BNPL) is beneficial. BNPL platforms enable you to offer your customers recurring payment terms (e.g., monthly, quarterly or biannually) while giving you access to the total contract value upfront. The platform evaluates the customer on several risk metrics like business credit score, propensity to buy, willingness to pay and probability of default. 

Based on this evaluation, the BNPL platform charges a financing fee for the transaction, which can be assumed by the vendor or customer or split between the two.

While five strategies provide a solid roadmap for reducing downsells, turning them into measurable results takes the right support. That’s where Ratio Boost comes in—helping SaaS businesses like yours simplify renewals, retain more customers, and grow revenue.

Reduce Downsells and Maximize Renewals with Ratio Boost

Renewals can make or break your SaaS business. When customers face high upfront costs, they’re more likely to downgrade—or even leave. That’s where Ratio Boost steps in to make renewals smooth, customer-friendly, and profitable.

With Ratio Boost, you can:

• Offer Payment Flexibility: Customers struggling with affordability can choose manageable payment terms like monthly or quarterly, making it easier to commit to upgrades or higher-tier plans.

• Get Paid Upfront: While customers benefit from flexible terms, you still receive the full contract value upfront, ensuring steady cash flow and financial stability for your business.
• Streamline Operations: Ratio Boost automates billing, payment collection, and contract management, saving your team time and reducing operational headaches.

Ready to optimize your SaaS renewals? Request Ratio Boost’s Demo today and see how we can help you reduce downsells, retain more customers, and maximize revenue!