Most SaaS startups focus on acquisition and conversion in order to grow. However, the retention still remains a secondary priority, if at all. That’s because most of the sales and marketing teams think that once the customer is converted, their job is over.
However, companies that shift their focus to customer retention are more sustainable because due to higher retention rates, their Customer Lifetime Value (CLV) increases and thus, they can spend more to acquire and convert customers.
According to a study by Bain & Co, increasing customer retention by 5% can increase your profits by 25% to 95%. In the same study, they said that the likelihood of converting an existing customer to repeat customer is 60% to 70%, whereas the probability of converting a lead into a new customer is between 5% to 20%.
That’s why retention is not only critical, it is a sustainable way to grow your business.
🛡️ You are reading “Improve retention to grow faster: A Game of Growth (Chapter 11)” – a series of articles on growth marketing. To read the first chapter of this series, go here 👉 Fundamentals of Growth Marketing: A Game of Growth (Chapter 1)
VC and ex Growth Head of Uber, Andrew Chen created this graph from the data analysis of top apps on the Android store. The graph below shows the % of users still active days after they installed it. For the top 10 apps, the retention rates are much higher than the next 50 apps, which is higher than the next 100 apps and so on.
This shows that the growth of these apps was directly related to their retention rates after 30, 60 or 90 days.
How to calculate retention
The retention rate is the number of customers who are retained after x days, out of all the customers who joined at the start of the x-day period. When you calculate retention rates, you’re looking at the cohorts of users i.e. when they became your users or customers.
Retention rates = (# of customers retained after x days) / (# of customers who joined at the beginning of the x-day period)
User interviews to understand how to improve retention
Before you start working on improving your retention rates, you must already have a good idea of what your users want to do with your product. Ask them what success looks like for them when they use your product.
Getting user interviews is the best way to get your answers, but a lot of companies conduct the interviews wrong. They ask users about the features, whether they liked them or not, what features do they use or don’t use, etc. But this approach is doesn’t reveal much because your users will say things just to please you or maybe they won’t have any idea of what features they need, what a good user experience will look like.
The right way to conduct customer interviews is something Jobs to be done interviews. Jobs to be done interviews help you identify the emotional and the social aspects of the decision making process. The goal for JTBD interviews is not to understand if they like your features or what do they think about it. It is to understand how they make decisions.
There are types of questions you should ask during a JTBD interview for a new product:
- When did you first realise that you wanted a solution to this problem?
- Where were you when you realised the need or problem?
- Were you with someone?
- What were you trying to do when you realised the need?
- Did you ask someone else what they thought about the need or the problem?
- What was the conversation like when you discussed purchasing the product with your business partner or your spouse?
- Before you signed up, did you think about what using the product would be like?
- Where were you when you were doing this thinking?
- Were you thinking out loud or to other people?
- Did you have any points of anxiety? Were you nervous about something or some feature? Why? Did you talk to somebody about your anxiety with the product? What did they tell you?
The idea is to dig deeper into the why’s and why’s and why’s. Distil all those qualitative data into 3 categories.
- Are enough people motivated to solve this pain? Or is there a stronger pain somewhere else?
- What common events or situations trigger these pain points?
- What existing solutions do we not want to compete with?
How to improve the retention rate?
There are three phases of retention:
- Short-term retention (Week 1)
- Mid-term retention (Week 1 - 4)
- Long-term retention (Week 4+)
The goal of short-term retention is to enable users to use your product more than once.
Your users use your product as a part of their workflow and that’s why it’s important to understand that workflow and create a habit among your users.
Almost 75% of your users stop using your product within 1 week of joining. Maybe they find your product too complicated to use. Or maybe they are looking for a particular feature which is missing in your product.
That’s why the right onboarding is very important during the short-term retention phase. The initial phase is also important because it’s then that they realised the value in your product and took the decision to try it. At this point, if they like your product, they will tweet about, send it to their friends and family to try and even leave a review if they liked it. They might even want to upgrade. To bring people to this level of deeper relationship should be the goal of your onboarding as well.
Emails are a great way to engage users in the short-term by sending them a Welcome onboarding email sequence. Be careful, not to put too much in your emails or send too many emails that they unsubscribe.
Also, you want to be careful about your ask. They might be in meetings or on their phone, and if you’re asking them to make a transaction right away or login to your app to take any action, they aren’t going to do it straight away.
Rather, use onboarding emails to talk about the benefits and develop a relationship. This way, they might want to come back naturally to your product.
In-product messages and notifications
In-product messages are great to give the context of the product right there. You can combine these messages with emails so if a user hasn’t seen the product notifications, you can send them an email after several days. These in-app messages are about helping your users with their goals, not your goals.
You can send in-app notifications for product tours, notification bars, onboarding checklists, new features, call to action, etc.
The biggest drop-off happens within the first week because they didn’t use your product, you didn’t tell them about the value of your product, they didn’t hear the benefits and how it can fit into their workflow.
If the onboarding process is in place, make sure you’re not talking about your features but what benefits do you provide to the users, what value do they get, etc.
The goal of the mid-term retention is to establish a pattern in usage. From Week 1-4, the drop in users is much lesser but significant, about 20%.
In the mid-term retention phase, you are going to strengthen their faith in you by engaging them even more. By this time, they have used your product and know what they like and what they don’t like about it.
You can track their usage in your product, and now is the time to address their problems and find the solutions. If you observe that most users are not creating lead capture forms with your emailing tool, and that's making their workflow slower because they are manually uploading the CSV files.
At this time, you should send an email or in-product notification to remind them of the benefits of using the lead capture forms.
The goal of long-term retention is to make users rely on your product as an indispensable tool. Once they are hooked to your product, they are going to use your product for a long time. By now, you should have a good idea of their workflows.
See, if they’re using your products with other tools that they’d like to integrate with. Build integrations for them. These are the people who have used your product for over a month regularly.
At this stage, you are really forming a habit so that your tool becomes indispensable for your users. There are three ways of forming habits in the long-term:
- Reminder: We all procrastinate and this is the biggest obstacle to habit-forming. Since your users are new to the product, they might be procrastinating using it. Use reminders to bring them back and guide them on how to get the maximum value out of your product.
- Routine: Routine is to some extent the habit itself. Depending on your product, make your users come back and use the product regularly. If they are not using the product daily, or whenever they do the job that your product helps with, they will most likely forget about your solution.
- Reward: Offer a discount or extra value to anyone who’s been a customer for 90 days and reward them for their loyalty and stickiness.
Retention is truly powerful and focusing on retention will put you far ahead of your competitors. You will build a truly engaging and sticky product.
Have questions regarding this article? I’d be happy to answer them.
If you want to learn more about retention strategies, I highly recommend you check out this course on retention by Val Geisler, CXL Institute.
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