Acquisition vs Activation and How to Predict Churn
A deep dive into managing user states to reduce disengagement and churn.
Many of us are familiar with the popular Pirate Metrics (AARRR) and the concept of conversion funnels. They often look simple and linear. However managing your users to conversion and beyond is not as straight forward.
In this post, I want to take a dive into the differences between User acquisition and Activation. As well as how to determine Active vs Inactive users and to use the information to predict disengagement and users which are at risk of churning.
Acquisition vs Activation
Acquisition is when you get a user on board.
Activation is when you get them to use your product in a meaningful way.
Every product will define exactly when these states occur differently. However, acquisition is often the first step in the user journey and is a critical moment in your user journey.
But just because you’ve got them in the door doesn’t mean that you’ve won the battle for engagement. Signing up for Uber doesn’t mean you’ve taken any rides — just think how many things have you signed up for and never used?
This is where activation comes in.
Activation is when users start using your product in a meaningful way. This could be watching a movie on Netflix, making a payment on PayPal, or taking a ride on Uber.
Now this will differ depending on your product. the question you need to ask yourself is at what moment would I consider a customer as activated? What is the main task I expect them to perform?
For example:
Netflix:
Acquisition = Sign up for Netflix
Activation = Watch your first video
Uber:
Acquisition = Download and register for Uber
Activation = Take your first ride
In other words, you can sign up for Netflix but never watch a movie.
Similarly, you can download Uber and never take a ride.
So the question you need to ask with activation is: what’s the primary action you expect users to take?
Is it, watching a movie? Making a payment? Taking a ride? etc. How will you know that your users have started to use the product in a meaningful way?
Now defining this for what it means for your product is really critical here.
I see Product Managers regularly ask things like “What is a good daily active users (DAU) number?” as well as content on “The top 10 metrics to track”.
The danger here is that you end up tracking a generic metric that may make sense for a large portion of products out there but not yours.
For example, I had a previous client who were a FinTech company. Their mobile team was tracking daily active users (DAU), defined as the number of unique users who opened the app per day.
Now for some products, tracking this metric would make sense but how often do you look at your bank account? Do you check your app every day? I don’t.
So the question becomes — how useful is DAU as a metric for them? What behaviour are they trying to monitor through this measurement? Do they actually want their users to open the app each day and if so to what end?
Another way to frame this would be — If people aren’t logging in daily would that mean that the product is a failure? For them, the answer was ‘no’. Instead weekly or monthly active users (MAU) would be more applicable here. But better still would be to define a metric that aligns with their desired customer behaviour.
So it’s important to remember that every product will define exactly when these moments occur differently.
Retention & Churn
Once users are activated, the next step is to keep them engaged with your product.
Retention is the measure of whether users are still using your product over time. It’s not enough to just acquire and activate users; you need to keep them coming back.
Retention can be measured in many different ways, but a common metric is Retention Rate, which measures the percentage of users who continue to use your product, typically on a monthly basis.
The opposite to retention is churn. Users ‘churn’ when they stop using your product.
Some churn is an inevitable but it’s important to understand why users are churning so you can address issues and prevent higher churn levels in the future.
Churn is typically measured by the number of users who stop using your product on a regular basis — most commonly measured month-to-month as Churn Rate (or more simply referred to as ‘churn’).
For example:
If you started the month with 5,000 users and you lose 500 users that month.
Churn Rate = 500 users lost / 5,000 users) = 10% churn.
Retention Rate = 90% retention for that month.
However, the distance between active users and retained ones, or from active -> churn is a more complex journey.
Enter Inactive and Disengaged Users…
Inactive vs Disengaged Users
It’s also important to distinguish between inactive and disengaged users.
Inactive users are those who have not been activated yet or have stopped using your product for a short period of time.
For example, if someone hasn’t watched a Netflix video in over a week, you might classify them as inactive. However, if that continues for an extended period of time they may then be classified as ‘disengaged’.
Disengaged users are those who have not used your product for an extended period of time and are unlikely to return.
It’s important to track the difference between inactive and disengaged users because disengaged users are likely to churn.
You want to know when users become inactive and disengaged so you can find ways to re-engage and reactivate them before they churn.
Conclusion
In the end, the picture starts to look a lot more like the right over the left:
Don’t just track acquisition, activation and retention. Track the nuanced states between each of them.
Define and measure whether your users are inactive vs active and when they may begin to become disengaged. What is an appropriate usage for your product? Would they be inactive after a day, week, or month?
And remember to implement ways to reengage and reactivate them. This could be as simple as outbound email marketing or more nuanced like offers to push notifications.
