[Guest author Alex Bloom is founder and CEO of StatusCast, formerly Uptime.ly.]

There’s been a lot of press lately about the power of the Software-as-a-Service (SaaS) business model. Redpoint venture capitalist Tomasz Tunguz noted that SaaS companies are making it to $50 million in annual revenue faster than ever before, while IDC predictedthe enterprise SaaS market will top $50 billion by 2018.

That sounds great, but for SaaS companies to succeed, they need to manage customer churn. Churn is what happens when a company fails to retain a customer, and it’s a particular concern for SaaS business models built upon recurring revenue. Fortunately, there are lots of things SaaS companies can do to minimize churn, from creating “success milestones” to using key metrics to foster “informed engagement.”

Customer retention starts with the first interaction

Every interaction a customer has with your company (whether talking with a live staff person or just Googling your website) informs them about what they should expect from you. Ideally, that expectation runs something like: “Wow, this company really understands my problem, their proposed solution is a perfect fit for my needs, and it looks like I can trust them to take good care of me.” But no matter what their first impression, perhaps the most important driver of customer expectations isn’t sales or marketing, but the product itself.

Late last year consultant Lincoln Murphy wrote “The Secret to Successful Customer Onboarding” in which he argues that poor onboarding can be a the primary culprit in cases of churn. Murphy concluded that poor onboarding is a result of a company’s failure to communicate how its product meets the customer’s definition of success. He makes some excellent points:

• “Converting to a paying customer (from free trial status)” is your definition of success, not theirs.
• To demonstrate success you need to map out what achieving their goal looks like in your product.
• Create “success milestones” that lead to upsell/cross-sell opportunities.

This last point is critical, as it encourages companies to work to repeat the initial “wow!” moment that got the customer to consider your solution in the first place. Creating “wow” moments on a planned cycle/schedule reinforce the customer’s perception that your product and your company are rock stars or thought leaders or tech messiahs—and absolutely worth continuing to pay $XX for (or an extra $YY for).

Customer retention is all about informed engagement

Neil Patel presents eight useful tips in his KISSmetrics blog post on SaaS customer retention, but the first deserves special attention: ask for engagement. If a customer isn’t using your product, they aren’t likely to pay for it. You need to monitor customer activity and adjust features and functionality to maximize the time and attention that a customer finds value in devoting to your product.

A word about customer engagement: it does not need to be live people interrupting a customer’s day to participate in a usability survey or focus group. New Relic Insights, for example, is designed to make it easy to see which features are being used, and can even tell you about user activity by size of company. For example: “Larger companies don’t seem to be using the in-app messaging feature—why is that?”

Insights does this by monitoring how customers actually interact with your product. The data is populated in real time and creates a feedback loop that the customer is a part of, regardless of the extent to which they use your software … and regardless of whether they’re too busy to talk with your product team!

There’s no better way to be perceived as an expert than to know what customers need and give it to them without them ever having to ask. This case study about marketing leader ReachLocal provides a concrete example of how one company’s ability to continually monitor product performance and user engagement led to proactive problem identification in minutes rather than hours, not to mention direct improvement of client experience by operations and development within a single tool.

If there’s a silver bullet to reduce SaaS churn and optimize customer retention, it’s all about making sure customers derive value from the minute they first encounter your product, and then grow their knowledge and appreciation of it over time so they can discover how to use it more broadly.