User Retention Defines Your Product’s Success: Here Are 3 Ways to Improve It
When user acquisition efforts kick off, it’s exciting to see that first flood of new users come in. However, the most important — and hardest — part of your product’s success is keeping those users loyal once you’ve garnered their attention. For most businesses, the number of users who churn in the first session ranges from 20% to 60%. But focusing on improving and increasing user retention will enable sustainable compound product growth.
There can be many indicators of product growth, including increased cash flow, press mentions, leads, new users, and site traffic. But the most overlooked one is often user retention. User retention is the best indicator of your product’s health in the long term.
Yet, with endless new companies and products in the market, it’s only getting more challenging to encourage users to choose your product over others. Keeping tabs on your retention rate will help you determine your product’s success in the long run. Cash flow, leads, and other metrics can be growth indicators in the short term, but paying more attention to user retention will lead to better growth outcomes overall. Improving retention by just 5% can boost revenue by 25% to 95%.
What Happens When Retention Gets Ignored?
Retention is often referred to as a silent killer. Growing quickly is not enough; the long run is what matters most. Take Fab or Homejoy, for example. The design e-commerce site Fab was valued as a unicorn and raised a $336 million funding round prior to closing its doors. Home service provider platform Homejoy was thought to be the fastest-growing startup Y Combinator invested in, raising almost $40 million just 18 months before shutting down, too.
At Google, the tech giant reports similar failures. Its streaming platform Google Stream, which was in talks with Bungie and Capcom for deals, fell short of its one million monthly active users goal by about 25%.
These failures are attributed to user retention losses. Their strategies focused exclusively on short-term growth and competition. It’s easy to show investors top-line growth, such as gaining 100,000 new users in a week, but retention paints a more accurate picture of long-term success.
How to Improve User Retention Accurately and Effectively
Choosing how to measure user retention is a critical aspect of ensuring success. To define your retention metric, you need to go through three steps:
1. Choose a frequency that makes sense for your business.
It’s important to decipher the best period to track user retention early. Daily tracking is the best way to go if individuals use your software every day, but you can also experiment with weekly or monthly data analysis to see which frequency works best. When you measure engagement on the wrong beat, your product might falsely appear to have high retention. It’s crucial to ensure you are measuring user retention in a way that makes the most sense for your business.
Consider Airbnb. The lodging company looks at “number of nights booked” as a retention metric. However, there tend to be some patterns when it comes to vacationing. School breaks, holidays, and other events might impact how many people book through Airbnb at a given time. If the company chose a frequency that didn’t account for these fluctuations, its data wouldn’t be accurate.
2. Determine the core behavior that delivers value to the user.
There are myriad ways to measure whether your users are interacting with your product or service effectively, but the most important thing to consider is what behavior delivers the most value to the user. When businesses solely focus on statistics and product features, they lose sight of the reasons users stick around.
For example, Netflix chooses to track “hours watched.” How much time a customer spends watching a show on Netflix is a good indicator of what they find valuable. All the company’s marketing efforts prompt users to continue watching more shows that best align with their preferences. The result? A low churn rate.
Ultimately, customers remain loyal to businesses, products, or services based on how they contribute to people’s lives. Not sure what core behavior is the most valuable? Try using in-app surveys that gather feedback on user experience and what users want and need. Doing so allows you to provide value to your customers in ways that will keep them coming back.
3. Identify who is included in the retention metric.
Your answer to this prompt is going to depend on your product. For instance, let’s revisit the Netflix example. If you only track hours watched, you aren’t accounting for the fact that users share their passwords. Hours watched is a useful metric for looking at engagement, but it doesn’t necessarily equate to Netflix retaining its most valuable customers.
This would work similarly for something like Canva. If you’re only looking at the number of active users versus the number of paying users, you could be setting your company up for failure. You need to retain the right users, not just any user.
User retention strategies take time. In most cases, it could take months or even years to see the true impact of user retention on your company’s growth. Yet, the long-term health of your company is an essential aspect of business ownership. No one wants a business that fizzles out after a few short-lived years. Your end goal is to keep users coming back to your software, app, or product. You can ensure the longevity of your product by placing more importance on user retention and using metrics and strategies to keep your customers coming back well into the future.
