How to Approach User Retention?

And why praising user acquisition is not enough anymore.

In today's startup world, the race for user acquisition often takes center stage. It is more eye-catching, exciting, and for most, a very straightforward path to growth. However, this focus can often overshadow the importance of other aspects in startup growth.

Indeed, at the beginning, it's important to acquire good users to validate your problem hypothesis (or validate PMF), but that's not usually the end-game. In order for a business to scale in the long-run and remain competitively defensive, user retention is the area where the attention should be shifted.

What is User Retention?

An obvious question to start is: what is common understanding of retaining a user?

At its core, a user retention is simple the ability of a company or product to retain its customers over a given period of time. It`s a measure of how many customers continue to user and engage with a product / service after their initial purchase or sing-up.

It`s very important to remember that user retention is usually the output, not the input. Furthermore, retention is broken into main components:

• Activation

• Engagement

• Resurrection

There is no one better than Reforge illustrating how these 3 components works together to improve Retention.

At this point, we know what retention is and how it's broken down. From here, it's clear that even if you acquire the best audiences, if users don’t pass all stages and retain long-term, your business/product won’t prevail for too long.

Why Retention is Your Silent Killer?

Retention is your startup's silent battleground. Often overshadowed by the allure of new users, its importance quietly simmers in the background. But here's the catch: every lost customer is a whisper of what could go wrong, a subtle hint that might go unnoticed until it's too late. It's not just about numbers; it's about sustaining the heart of your business. Ignoring retention is like ignoring a leak in a boat - it may not sink you today, but over time, it's the difference between sailing smoothly and sinking quietly. In the startup world, where every user counts, overlooking retention is a silent killer, quietly chipping away at your foundation.

Retention vs. Acquisition: A Data Snapshot

In order to keep it simple, I’ve made a high-level comparison between these two growth levers, looked at from various business angles.

As much as I love working on acquisition as well, startups need to start thinking early about retention. It's crystal clear that just getting to the top of the line is not enough anymore.

What Are The Common Mistakes To Avoid Around Retention?

Like every other growth lever, user retention also has its own pitfalls and areas to watch out for in order not to fall into the trap. Let's list some of the most important from my observation:

1. Don't skip the importance of working on your “onboarding process”. It's so crucial to be able to onboard customers quickly in order to build a quicker habit around your product.

2. Lack of engagement strategies is the second point on my list, which I see so often. Engagement is not easy and requires a lot of commitment, but not having a clear plan on how to keep your core users engaged over time can result in a “loss of interest” = churn.

3. Working on retention, either from a strategy or analyst standpoint, always requires you to delve deeper into cohorts. That's why it's so important not to neglect personalization.

4. Keeping users engaged is not about over-promotion or spamming. Don’t use shortcuts like sending X emails/push notifications per day to improve retention.

5. Being obsessed with top-line numbers, startups fail to deeply understand customer needs. This makes it hard to justify the channel-product fit in the future, as conversion might be good, but in the long run, churn will rise and revenue will sink.

6. Listen to your customers; this is what top founders usually advocate when building your startup. The same can be said for retention, as neglecting customer feedback regarding their experience can lead to missed opportunities for improvement.

A Go-To Strategies to Improve User Retention

Despite its complexity, working on retention can be a very straightforward process once you have the right approach.

Here are some quick points for improving user retention. I’m sure there are more, but I’ve found these to be pivotal from my experience.

1. Being able to provide a personalized user experience is one of the game changers for me. You need to engage with customers not only on a cohort level but on a more personal level as well. If you implement global tactics touching “all users” in order to shortcut success, you will fail. That’s why working on retention is so unique and challenging at the same time.

2. There are products where customers engage more often with CS teams. This is also an indirect area of user retention that you can work on. If customers are happy and get helped, they will continue engaging with your product. One way you can do this is to group common complaints/challenges and break them down on a cohort level, to see if your long-term retained users have similar issues versus those who just started. This is an awesome product-loop feedback that can eliminate signs of drop-off early on.

3. I’m a big advocate of companies getting their user 'onboarding' right. Why?

   • Because this is where you touch 100% of all newly acquired users.

   • Good onboarding accelerates product adoption significantly (a.k.a., getting to the desired 'aha' and 'habit' moments faster).

   • Customers tend to understand more quickly how you can help them and are potentially more likely to retain.

4. Build 'gamification levers' into your product that correspond with your user engagement. Of course, you need to drive a lot of hypothesis testing on gamification, as sometimes it's not as straightforward as you think.

   I usually try to be cautious, as we don’t want a sudden overwhelming of decision-making.

5. Build a regular customer feedback loop mechanism, no matter what stage your business is in. You get to where you are by listening to customers. I often see this, especially in more mature organisations, where 'revenue' prevails over all customer touchpoints and it's kind of pushed back, as companies assume that since they've stuck around for so long, they will continue to do so.

   You can streamline multiple touchpoints like: NPS score at different stages of your product (not just after purchase), app reviews, surveys, and communication engagement, etc. These are very correlated with building the right retention levers.

6. Setting up the right communications structure is crucial for building your retention numbers. Knowing when to send, the frequency, and what content requires constant iteration and deeper understanding of your customer profile and their in-product activity.

7. Review and eliminate product features that drag down retention. This point can be controversial for some, but I've found in many cases across companies that I've worked with, that product teams, especially, are not willing to eliminate features, rather than just piling up in order to move that metric. Well, what if you launch a feature or upgrade a current one and you see even lower adoption and your core cohorts' retention rate drops by 5 - 6%? Would you say 'that's normal' or 'let's create another' or 'let's improve it'? On the improvement side, I can agree that usually a few iterations are okay, but if you don’t see improvement already, wouldn't you start thinking about 'elimination'?

How to Measure Retention?

Measuring user retention can be an overwhelming for some teams or individuals. That`s why is important to have at least the base measurement in place and build from there.

I would suggest a few key metrics that are important in order to track your retention efforts:

1. Customer Retention Rate

   → Definition: It measures the % of customers you retain over s specific period of time. The periods can be: one year, one month, one week etc.

   Formula: RR = ( Customers At The End of The Period - New Customer Acquired ) / Customer at the Start of the Period

2. Customer Churn Rate

   → Definition: Represents the % of customer who using your product / service over a specific timeframe. How frequent you need to calculate this depends on your business volume ( thousands of customers > track monthly, hundreds or less > track semi-annual or annual ).

   Formula: CR = ( Number of Customers Churned / Total Number of Customers at the Beginning ) * 100

3. Revenue Churn 

   → Definition: It simple measure the rate revenue that is lost from existing customers in a given period.

   Formula: [(MRR at Start of Month - MRR at End of Month) - MRR in Upgrades During Month] / MRR at Start of Month

4. Repeat Purchase Ratio:

   → Definition: This is the rate customers come back to your product to make another purchase.

   Formula: RP = ( Number of Customers Who Made Repeat Purchases / Total Number of Unique Customers at the Beginning )

5. Avg. Time Between Purchases:

   → Definition: The average duration between successive purchases by a customer ( repeated ).

   Formula: TBP = Sum of Individual Purchase Rates / Number of Repeat Customers

6. Customer Lifetime Value ( or LTV )

   → Definition: This metric projects the total revenue a business can expect from a single customer account.

   Formula: CLTV = Customer Value * Average Customer Lifespan

   where Customer Value = Average Purchases * Avg. Number of Purchases

In conclusion, from a personal standpoint, focusing on user retention is vital because it directly contributes to the long-term success and sustainability of a business. It's not just about the immediate revenue from repeat customers, but also about building a community of loyal users who believe in the product or service.