The single most important and often overlooked driver of long-term sustainable user growth is healthy user retention. Most companies don’t see the critical role retention plays in building a long-term business, and if they do they find it difficult to actually improve.
Today’s article will be about why retention is so important and some key tools that are instrumental in improving user retention and directly applicable to companies at any stage.
I’ll include a few highlights below. For a deeper take on this, click the link at the bottom to go to the full article.
Why is retention so important?
Whether you’re an early-stage startup starting to think about scaling user growth or later-stage with hundreds of millions of users like Pinterest, user retention is really the silent killer. It could hinder your product from truly taking off early on or severely limit your product’s long-term success. Twitter is an example of the latter, as their user growth has effectively plateaued even after registering the bulk of the internet population. This is largely due to poor user retention.
User retention is also core to a successful business, here’s how the typical business model looks like for most consumer or enterprise companies:
As you can see, user retention sits at the heart of the business, where increasing retention can effectively lower the cost to acquire a monetizable user, increase lifetime value, and ultimately increase overall revenue for the business. You can imagine what it means for a business if your product’s user retention was low or trended to zero…
Understand your user retention
First, figure out what makes the most sense for your business. Daily active usage (DAU), weekly active usage (WAU), monthly active usage (MAU), the number of paid customers etc.
Next, you’ll want to understand what percentage of your new users retain weeks and months after registration and how that changes over time.
Some key insights from the chart above:
- Indication of a long-term retentive product. If your retention curve ultimately flattens out like in the graph above, this is a strong indicator that you have a long-term retentive product. However, if it trends towards zero or even if it flattens out fairly close to zero, you’ll need to improve your core product ASAP.
- Changes in retention over time. In the graph above, it shows that the newer cohort in blue is retaining worse than the earlier cohort in red. You should be understanding how your retention changes over time and be concerned if fewer users retain over time.
- Your window of opportunity. The graph above shows that 50% of new users don’t return after the first week. This is a strong indicator to focus even more on improving your initial onboarding and first-use of your product.
Talk to your users
The easiest way to start, especially early on when you don’t have a lot of data, is to talk to your users and learn what worked and didn’t work for them. I suggest talking to your retained users to start since they’ll be most willing to share their experiences. User research is important in understanding exactly what users did to ultimately see value in your product as well as the struggles they faced.
Rapidly learn, iterate and improve
Now that you understand your user retention and what you could do to improve it, the next important step is being able to run as many experiments to rapidly iterate towards improving your retention.
Often such tests will need to run for weeks or even months to observe statistically significant improvements to long-term retention. To address this, invest in building good leading indicators of long-term retention which you’ll use instead to predict improvements to retention. This will help you make quicker decisions on experiments and increase overall iteration throughput. (More on this in the linked article.)
Quick example. Revenue is a lagging indicator. When it falls, it’s already too late, the damage has been done. You can choose a leading indicator for revenue to spot the problem before it’s too serious. It could be customer satisfaction (an average number from a regularly sent survey, or something similar). Usually these are correlated and customer satisfaction is trending down before revenue drop follows.
Leading indicators aren’t perfect and there are cases where you’ll want to run your experiments for a longer period of time just in case, but they are a critical tool to increase the velocity at which you learn and iterate to improve retention, while trading off some accuracy.
Healthy user retention is critical to the success of your business but it requires the right understanding, tools and rapid iteration to actually improve it.
- Understand how your users retain on your product by defining and charting user retention over time.
- Figure out how to improve your retention by learning from your users through user research and behavioral data.
- Rapidly experiment, learn and iterate by investing in leading indicators that predict long-term retention.
These three tools have been immensely valuable in significantly improving user retention and should help you obtain a better handle on this key problem while laying the foundation for building a long-term sustainable business.
PS. Leading indicator: ☀️ Lagging indicators: 😎😍