Posted 3/21/2016 11:05:41 AM by JUSTIN BAUER, Head of Product at Amplitude
An age-old question asked by founders is: Should I focus on growth or profit? If you take into consideration the recent economic context of falling valuations and dying unicorns, the question is moot.
Investors want to see sustainability; and a sustainable business takes both growth and profit into account. Early-stage companies, eager to show off their hockey stick growth, fall into the trap of overspending on paid user acquisition channels without considering burn.
User acquisition costs have increased 101% year-over-year. And with up to 80% of users churning 3 days after install, if you’re not investing in user retention strategies, you’ve only wasted your money. An often cited study by Frederick Reichheld of Bain & Company states that increasing a company’s retention rates by 5% can lead to 25%-95% increase in revenue.
It’s clear that maximizing user retention is the key to driving both growth and profitability. In order to begin building a retention strategy, there are several dimensions to take into consideration.
First things first: Set up your analytics
The unicorns of today did not make their apps sticky with gut feelings; they went through rigorous experimentation and iteration, based off what their analytics was telling them.
Basing your numbers off a vanity metric like downloads - even DAUs and MAUs in some instances - would be a serious misstep. These metrics are great for understanding short-term user acquisition, but it’s doing nothing to answer the question of whether (or not) they are being retained.
To really start building retention into your app, you need to analyze user behavior. There are some users who get immediately hooked and user your app everyday, while other people download it, never see the value, and delete it.
To get more of the former group and less of the latter, you have to create behavioral cohorts - that is, groups of users who exhibit specific behaviors in your app within a given timeframe. If you’re Facebook, this could be adding a friend, liking or sharing a post, or updating your status within, say, 24 hours of downloading the mobile app. You can then look at how long different behavioral cohorts stay active in your app and are therefore better retained.
This graph shows the retention of the cohort of users who perform the action “favoriting more than 3 songs” in this music streaming app, compared to users who perform any action. The overall retention of users who “favorited more than 3 songs” is higher.
After you use behavioral cohorts to figure out the kinds of behaviors that keep people coming back to your app, it’s up to you and your product team to devise a way to get those behaviors upfront in the user experience.
Growth and retention are not merely numbers; they depict the relationship you - as an app creator - have with your users. Over 80% of users say that an app needs to make a good first impression if they are going to keep using it. The one and only chance for your app to make a good first impression is through onboarding.
Onboarding can be the critical differentiator between a new user that churns after day 1 or one that becomes an active user. A good onboarding flow can come in many different flavors depending on the app, but they all accomplish 3 core things:
1. Demonstrates your value proposition: Even if you’ve gotten someone to download your app, it may not be immediately apparent to the user what the point of it is and no one wants to spend time doing something useless. Convince them that they need it.
2. Gets users set up and ready to use your app quickly and easily: A good onboarding flow should get users to your app’s core experience fast without overwhelming them with features, no matter how great you may think they are.
3. Sets the stage for habit formation: As a part of your onboarding flow, make sure to highlight the features of your app that will keep your users coming back again and again. If you can ease the friction to getting your users to the Aha! Moment (more on that next), you are on your way getting your app fully integrated into your users’ lives.
How do you know if you’ve set up the perfect onboarding flow? That’s where really understanding what your users are doing comes into play. By looking at user behaviors, you can see where some people are falling off in the onboarding process and analyze what behaviors they are exhibiting instead. Pair that with A/B testing and you can test different flows to see if you can get users to the end of the process and actually using your app.
The Aha! Moment
Customers churn through mobile apps incredibly fast. 70% of the average mobile app’s users are lost after just one day. The top 10 apps lose only about 30% in the same span. About three days after installation, though, the retention rates even out: all apps will lose their users at about the same rate.
What makes the difference, then, is how well you retain users immediately after installation. If you can get them to your app’s Aha! Moment fast, you’ll keep them for a while.
Finding your app’s Aha! Moment is the key to unlocking long-term retention. Ben Stancil of Mode Analytics states the Aha! Moment is “a set of actions that separates customers who find value in your product from those who don’t.” Whether that action is getting people to add 7 friends in 10 days or to send 2,000 messages or follow 30 people, it is this at this inflection point which users have your app so deeply ingrained into their lives they have to come back no matter what.
Again, these “magic metrics” can arise from rigorous behavioral cohort analysis. Even if your long-term retention is only 10%, you can pick apart that cohort with increasing granularity - check their demographics, the type of device they use, and importantly, check what actions they are taking after they’ve completed onboarding.
They are your power users. Are they favoriting things? Following people? And then, make product changes to bring those actions to the forefront of a new user’s experience.
Engagement (and Re-engagement)
Once you’ve successfully onboarded users and gotten them to see your app’s core value, engaging (and re-engaging) users will be essential in keeping them retained. From email product updates, to push notifications, to special offers, there are a number of tactics to remind people about your app. But more broadly, engagement can be thought of in terms of product.
1. Re-engaging users with your app’s core experience: Loading up your product with features isn’t going to help if it obscures the core experience, as Evernote discovered. To retain your users, each product decision has to circle back and reinforce the user’s core experience. Defining key actions and behaviors ahead of time and then using looking at how often and how many users are performing those key actions can give you solid understanding of whether people are “getting” your app or not.
2. Engaging users with new features: Getting users to habitually use your app is a starting point for retention, but if it becomes too much of a habit, it becomes background noise. Because of that, it becomes tempting to try to crank out as many new features as possible. Your next new feature won’t, in and of itself, automatically mean better user retention. In fact, expending valuable time and resources on building a feature that doesn’t have reach or impact is worse than not building anything at all.
While re-engaging users with your app’s core experience is crucial to retaining current users, the best new features will try to engage the vast majority of casual users or resurrect those who have churned.
Analytics provides you with the numbers to shape your retention strategy, but the success team is your human element. By offering stellar reactive support in to queries and complaints, the success team of any company can build reputation and brand loyalty for excellent customer service. Both Amazon and Apple, for example, are widely known for being “customer obsessed.”
Great success teams - most critically for B2B companies though also relevant for others - take things step further by also being proactive about user satisfaction. By nurturing a relationship of empathy with their customers, success teams help retain satisfied users and set the stage for enthusiastic referrals.
Thinking about user retention is not just about thinking how to improve a specific metric. It’s about understanding how to improve the relationship you have with your users. And (as with most relationships), there are a number of different, nuanced facets to consider. Having a solid onboarding flow that gets users to their aha! moment, engaging them, and complementing their experience with a first-rate success team will get you well on your way to retaining them long-term.
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