Today’s post is all about improving your app retention rate. Either you love this topic or you wish we could skip it and go back to talking about how to acquire more users. Keep reading and you will realize how retention plays a huge role in user acquisition.
I was inspired to write this post after I got this question from one of my readers:
“Ideally it would be great to know what factors contribute to customer retention vs customer attrition. That may not be easy to ascertain but it’s on my Christmas list :)”
This a great question because there’s so much to unpack and good retention is a crucial component to any successful company. If you can’t retain or keep your users, you will eventually be out of business.
This means that improving your retention is worth serious money including savings in fruitless user acquisition efforts. Let’s see what I mean by this.
Why People Say “Retention is King” and Understanding the Compound Effects of Improving It
If you ask experienced marketers (or growth hackers), they might tell you that “retention is king”. However, some companies don’t seem to believe this and you can tell by their large user acquisition budgets especially when compared to their retention budgets (if they even have one at all).
Jerry Jao had this say about this interesting phenomenon:
“One reason could be that acquisition campaigns yield faster, more measurable results than customer retention campaigns. Acquisition’s Return on Investment (ROI) can simply be calculated by comparing how much you spent on marketing versus how many customers made a purchase. In contrast, customer retention takes into account the potential value of a customer over time, based on their behavior and spending habits, rather than solely focusing on the results of one transaction. As a result, the effectiveness of a customer retention campaign takes longer to measure than just counting one-off sales.” – Jerry Jao
His point on the perceived “difficulty” in tracking retention is spot on and the core issue that I want to tackle today. Setting up basic tracking systems for retention takes longer than simply tracking how many signups you got from a marketing channel.
However, the payback of improving retention is well worth all the hassle. For one, retention affects other key metrics like Lifetime Value (LTV) and similar revenue related metrics. This means you could spend more to acquire customers or make more money from your existing customers.
I personally think that improvements in retention tend to compound on each other just like compound interest. The understanding and tactics used to increase retention can be reused over and over again.
For example, a common strategy to improve retention is to set up notifications (emails, SMS, etc) to guide users towards performing key actions within your app.
The work of figuring out what notifications to send, at what point, etc is something that you will be able to reuse for years to come with future users. You build it once and then reuse it over and over again.
Finally, I’ll leave you with one more quote, this time from Brian Balfour, Previously VP Growth @ HubSpot:
“The point is, every improvement that you make to retention also improves all of these other things — virality, LTV, payback period. It is literally the foundation to all of growth, and that’s really why retention is the king.” – Source
How to Set Up a Simple System for Tracking and Improving Your Retention Rate
The first thing we need to do is to figure out how to track our current retention and any efforts to improve it.
I’m a big fan of simple solutions (that can be later upgraded) so I like to start with a simple Google Sheet or Excel file. It looks like something like this:
In this spreadsheet, every column is a cohort or groups of users. I wrote a short article that explain what cohorts are and why you should use them when tracking retention.
Next, we have rows for key metrics like CAC, LTV and of course, retention. I’m breaking out the retention week but this will vary depending on your app. Andrew Chen, Growth at Uber, has a short article explaining how frequency affects how you track retention.
I can then update the values for each cohort as time goes on.
Related: If you’re interested in getting access to this spreadsheet for tracking retention, simply click here to download a copy in Google Sheets or Excel.
The data for all this is coming from your analytics tool e.g. Mixpanel, Amplitude, etc. Most tools offer a way to create “cohort tables” which let you get access to the percentages that I’m using in my spreadsheet above. Other values will come advertising channels (CAC), your product database (LTV), etc.
Related: An important aspect of this process is having an analytics tool like Mixpanel properly set up. I created a short series of videos that will help you properly setup and use Mixpanel.
The reason why I’m doing this in Google Sheets instead of directly inside Mixpanel is that these tools usually make it harder to compare different cohorts against each other especially if each cohort is different from each other e.g. one signed up through FB ads and one signed up for Google Adwords.
Related: If you’re interested in properly setting up Mixpanel, then I recommend you check out a free video course that I created that will teach you everything you need to know about Mixpanel.
Some metrics like CAC, LTV, etc require multiple data sources so I might as well bring it all together in a spreadsheet. The tool itself doesn’t matter. You just need a way to comparing cohorts against all your key metrics without wasting a lot of time putting it together.
Now that we have a way to track our efforts at improving retention, we can start to figure out what factors contribute to great retention.
How to Consistently Discover What Factors Contribute to Customer Retention
Once you got your tracking place, you will start to notice patterns that increase or decrease retention. In fact, you will notice these changes almost instantly.
Let’s say you run a promotion that promises a reward for signing up. This is bound to attract users who might not care about your product and just wanted free money. Your retention will reflect this by plummeting.
On the other hand, let’s say you run a program that incentivizes referrals. You might notice a clear increase in retention within your first few weeks.
Having a simple and clear tracking system like the spreadsheet shown above makes this possible.
You can also start to explore why a certain cohort is performing better than the average. This exploring will take place through your analytics data and you’re looking for any commonalities like:
- Sign up source e.g. FB ads, Google Adwords, specific ads, etc
- Location e.g. city, country, etc
- Industry (if you’re B2B)
- Patterns i.e. 90% of users completed these 3 key actions.
Exploring attributes of certain users to determine factors of a great retention rate. Once you notice a potential pattern or attribute, you can choose to focus on it in your next cohort and see if your hypothesis is correct.
Ideally, you’re creating a new cohort every day or every week which means you’re constantly testing new ideas. You can then start to form a profile of the ideal user or customers.
You can then take all of this information that you’re learning (attributes, patterns, etc) and bring them to your user acquisition efforts.
The process of discovering what factors lead to great retention starts with understanding the importance of retention and setting up a simple system for tracking it.
As you notice changes to your retention, you can learn to calibrate everything around improving these important metrics. Your acquisition efforts can be measured not just on how many sign ups you got but how many retained users you ended up with.
As mentioned above, having a simple way of doing of tracking your changes in retention. I recommend starting with a spreadsheet because you can start using it right away.
If interested, you can download the same template that I used with my own clients which track your retention rate among cohorts plus also track other key metrics. I have an Excel or Google Sheet (my preference) format.
If you have any questions or comments, let me know in the comments!