How to Determine User Retention
User retention constitutes a fundamental cornerstone of a business' lifecycle.
It can either lead one down the path to continued growth and profit gain or signal the beginning of downfall and despair.
To understate the role of user retention in measuring performance is to deny the value it affords to a business both in terms of insights and its natural consequences. After all, an upward trend in user acquisition traditionally implies increased monetization, a restrengthening of acquisition channels, and quicker capital reinvestment, among other things.
It is upon this perennial classic understanding of user retention that marketing leaders and, by extension, companies go astray.
Based on my experience partnering with several companies across various niches, the following is clear:
- Companies incorrectly define user retention, often misguided by inaccurate metrics that do not paint a concise picture of key retention insights.
- Companies, frustrated by the cat-and-mouse game of identifying ideal metrics, abandon developing a user retention measurement plan altogether.
Needless to say, neither one of the above scenarios is ideal to guarantee longevity, especially in competitive niches.
Instead of following down the wrong path, here are a series of steps that will enable you to accurately determine user retention for a company.
Step 1: Choose Your Metric Correctly
While there is no exact one-size-fits-all blueprint that breaks down every single task that needs to be done to gauge user retention, universally, the starting point centers on pinpointing the best segment to measure.
To be more concrete, it involves careful thought and strategy to ascertain what elements will yield the most insight on your retention score, be it revenue gains, transaction regularity, product usage, or any other metric that may be relevant to your business.
Undoubtedly, failure to choose the right one will be detrimental.
In light of its importance, most businesses do make strides to pick their metrics wisely.
Yet surprisingly, this is one of the areas that 90% of them religiously get wrong.
This is because in most cases, while the selected metric may seem logical, it is not well-founded, oftentimes excluding key data that will grant you a more holistic perspective regarding user retention.
To provide you with an example, let’s examine the common metric proposed by most SaaS businesses to compute retention: revenue.
Revenue is an output resulting from its corresponding input, product usage. Consequently, the insight it provides is misleading in determining long-term product health.
This metric tells you nothing about how habitually a subscriber who pays a yearly subscription for your product utilizes it.
For all you know, the client may end up being a one-time user that churns at the end of their subscription.
This is something that you cannot gauge from revenue metrics in isolation, hence the reason one should weigh it against product usage to better measure retention.
Step 2: Choose The Right Frequency
Once metrics have been weighed, evaluated, and duly selected, the following step entails determining the frequency with which the metrics should be leveraged to compute retention.
This can be tricky. In fact, many businesses, particularly those who make the mistake of using revenue as an isolated metric, fall into the trap of assuming that engagement should automatically be measured on a monthly or yearly basis. While that may very well be suitable to determine your product’s retention, it is a hasty assumption that may cost you in the long run.
Instead, the responsible thing to do is to first identify the frequency with which your customers engage with your product. Based on your findings, this may be on a monthly, yearly, or another time period such as biweekly or quarterly.
To contextualize this, let’s say your clients typically engage with your product every three weeks. Surely, you will understand how insight obtained from a measurement frequency of one month (four weeks) will mislead the conclusions you draw on user retention.
Step 3: Choose The Right Core Action
Figuring out the metric and measurement frequency is only half the battle. The remainder warrants you to identify the action that your customer takes which then qualifies them as engaged.
In short, this answers the question, “how do I know that my customer is active?” and most importantly, “what can best tell me that my customer is engaged with my product?”
While this may seem like a no-brainer, some companies make the not-so-obvious mistake of merging two specific actions within a core action which then offsets the validity of data captured.
A classic example of this is Pinterest with the launch of their WARC, one which took the shape of either a weekly active repinner or clicker. While both served the same purpose, which was to prove that something caught a user’s attention within a given week, they required two separate actions: a repin or click.
In the long run, the presence of both actions caused a serious issue when it came to gauging user retention. In essence, it created a scenario where repins were chosen in favor of clickers and vice-versa, something which caused an increase in combined metric usage yet offered no substantial information on real customer engagement.
Determine User Retention Key Takeaways
All in all, doubling down on proper user retention strategies remains an elusive task for some businesses.
The three steps listed above are crucial in determining the success rate of the plan you develop.
That said, all products have their own peculiarities that may force you to steer away from the beaten path by vying for metrics, frequencies, and core actions that are not commonly tested.
The key is to dig deep and analyze your business product, paying particular attention to its facets that distinguish it from others and consequently impact on user retention.
Be grounded in a sound knowledge of the singularities of your product.
Whether the metrics you use are common or not should be secondary.
Remain confident knowing that the plan you have developed may not be right for other products, but it is right for you.