For most SaaS companies, the biggest problem isn’t finding customers; it’s keeping them.
Customers today have too many choices. AI has made features easier to copy and switching tools simpler. The result? Their patience is low. If a product stops feeling useful, is complicated, or no longer fits into the workflow, they leave. Retention, not acquisition, is the real bottleneck for SaaS growth.
A 2025 Gartner survey found that 73% of chief strategy officers and sales leaders in SaaS companies now prioritise growth from existing customers over acquiring new onesBut to retain customers and defy the MVP-and-churn pattern, SaaS companies need to design their AI products such that they perfectly match user requirements. This is the Cinderella Glass Slipper Effect, coined by Andreessen Horowitz, theorising that growth happens when a product fits a very specific customer perfectly.
In the AI era, finding that perfect product-market fit (PMF) isn’t an easy task. As Ashutosh Prakash Singh, co-founder and CEO of RevRag.ai, puts it: “In AI, PMF is a moving target. You don’t find it once; you must maintain it.”
Consumer Behaviour is Rewriting PMF
PMF in SaaS is shaped by changing customer behaviour and rapid AI-driven commoditisation.
“Most customers initially look for a SaaS that fits their problem well at that moment,” notesAyush Shukla, Co-founder and CEO of e-commerce loyalty rewards platform Nector.io, in a conversation with AIM. “If the tool clearly solves their core need, they’re happy to adopt it.”
What causes churn, however, is not the absence of new features. “They switch when the product stops fitting their workflow, becomes too complex, or no longer delivers clear value,” Shukla adds.
This shift is being amplified in the AI era. Singh explains, “Retention is no longer defended by features, but by workflow integration and proprietary outcomes.” With models becoming interchangeable, differentiation increasingly lies in how deeply products understand and adapt to customer behaviour.
The emphasis is now on solving a single, high-intensity problem with precision rather than expanding horizontally across features.
SaaS Investors are Fixated on Retention
Across venture and alternative capital, retention has become the most trusted signal of SaaS quality.
“There is no single most important metric,” says Viju George, Partner at Mela Ventures. “There are a handful of key metrics—ACV/customer (to assess land-and-expand potential), number of customer adds, net revenue retention (NRR), gross margins, marketing expenses, churn, and pipeline-to-TCV-to-revenue conversion are key metrics we track.”
Among these, NRR stands out. “NRR reflects product value, customer stickiness, and the ability to grow revenue without excessive capital burn,” says Shelly Kwatra, assistant vice president of investments at BlackSoil.
Singh also notes that high NRR indicates the product, rather than being a one-off delivery, grows with the client. “We also obsess over the LTV/CAC ratio to ensure our unit economics are ‘recession-proof’.”
The LTV/CAC ratio compares the total profit a customer generates over their relationship with the business to the cost of acquiring them.
However, Kwatra adds a cautionary note on headline growth. “Well-funded startups can always drive topline growth through aggressive customer acquisition. From an alternative credit perspective, retention and unit economics matter far more.”
In the AI era, retention is increasingly becoming synonymous with outcomes. “Customers stay with SaaS platforms that are conversational, context-aware, and intelligent—systems that understand intent and deliver value with certainty, not just features,” says Shankar Lagudu, co-founder and COO of SaaS company Responsive. “Retention has become the clearest signal of whether a product is truly delivering outcomes.”
Real Defensibility
Early customers are no longer just validation points; they are also the foundation of long-term defensibility.
George stresses that many SaaS failures stem not from premature scaling. “We have seen technically excellent startups unable to create a dent in the marketplace because of their inability to cogently communicate their value proposition.”
His advice is blunt: “Build essential/core features first with the goal of building an MVP. Don’t wait to ship the final product.” Instead, founders should “work closely with 5–10 early users and manually observe how they use the product.”
Scale, he notes, should come only when “retention is strong, customers repeatedly use the product, and the core feature set is stable.”
For investors, early customer trust matters more than future roadmaps. As Shukla observes, “Investors typically prioritise retention and early customer trust because these are strong proof points that the product is solving a real problem.”
Retention vs Acquisition
The traditional growth playbook of ‘acquire aggressively, fix retention later’ is rapidly losing favour.
“Customer acquisition is becoming more expensive and uncertain, while retention is fundamentally a win-win,” notes Lagudu. “Companies already understand their existing customers’ workflows, needs, and context. Serving them better lowers friction and builds trust.”
Singh frames this in valuation terms: “High churn is a leaky bucket that kills valuations. By focusing on retention first, every new dollar of growth is cumulative, not restorative.”
He adds that the strategic goal is to become indispensable: “We choose to be the ‘glue’ in our customers’ tech stack, making the cost of switching far higher than the cost of staying.”
Srinivasan Raghavan, CPO, Freshworks explains it’s not about getting the contract, but rather about delivering value. “Retention becomes the engine for efficient growth: renewals, expansion, advocacy, and lower CAC payback.”
Freshworks is leaning into retention by designing for time-to-value and value-to-renewal. The company is building around the customer’s operational outcomes—faster resolution, higher CSAT (customer satisfaction), lower cost-to-serve, better agent productivity—so that customers feel ROI early and continuously.
New-age Metrics
As SaaS models mature, the metrics used to evaluate them are evolving as well.
“ARR remains a starting point, but it no longer tells the full story,” says Kwatra. “From an alternative credit perspective, retention and unit economics matter far more. A healthy LTV/CAC ratio of 3:1 or higher, low churn, and improving efficiency with scale indicate a business that can generate predictable cash flows. For more mature SaaS companies, we also assess incremental burn, revenue per employee, and whether growth is being achieved without operational strain. Growth without discipline is usually an early warning sign.”
Time-to-value has emerged as a critical metric in AI-first products. “In the AI era, customers have zero patience; if your tool doesn’t solve a problem in days, you’ve lost,” says Singh. “NRR and time-to-value are the gold standards today.”
Operational discipline is also under scrutiny. “Growth without discipline is usually an early warning sign,” Kwatra notes, pointing to metrics like incremental burn and revenue per employee as indicators of long-term resilience.
The New SaaS Reality
Taken together, these perspectives point to a clear shift in how SaaS companies are built and evaluated.
“Outcome-based SaaS means the software doesn’t just support work—it helps complete it,” says Lagudu. “That’s what drives long-term customer trust and retention.”
Or as he sums it up: “In the age of AI, growth follows retention.”
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