Retention importance and highlights from Growth lecture by Alex Schultz in YC about it

What is Retention?

5 min readApr 28, 2016

Retention(%) metric is defined as the number of users who came back in this time period/initial number of users.

How to Calculate Retention

First you need target a period of time and these three piece of informations fo calculate it (not new customers does not count) :

Number of customers at end of period — E
Number of new customers acquired during period — N
Number of customers at the start of that period — S

And this is the formula to calculate it:

((E-N)/S)*100

Retention importance

Retention is single most important thing for growth.

If you end up with a retention curve that ascentotes to a line parallel to the x axis you have a viable business, and you have product market fit for some subset of market.

This red line is number of users who have been on your product for a certain number of days

So what you then do is look for all of your users, who have been on your product one day. What percentage of them are monthly active?! 100% for the first 30 days. obviously, because monthly active they all signed up on one day. But then you look at 31. Every single user, on their 31st day after registration, what percentage of them were monthly active, 32nd day,33rd day, 34th day? And that allows you with only something like 10,000 customers or whatever, to get a real idea of what this curve is gonna look like for your product.And you’re gonna be able to tell does it asymptote. It’ll get noisy out towards right hand side, but you’ll be able to get a handle on, does this curve flatten out or does it not.
If it doesn’t flatten out, don’t go and do growth tactics, don’t go and do virality, don’t hire a growth hacker. Focus on getting product market fit. Because in the end, idea, product, team, execution. If you don’t have a great product, there’s no point executing well on growing it. Because it won’t grow.
Number one problem I’ve seen inside Facebook for new products, number one problem I’ve seen for startups I ever devised has been, they don’t actually have product market fit when they think they do.

Different verticals need different retention

Different verticals need different terminal retention rates for them to have successful businesses. If you’re in e-commerce and you’re retaining on a monthly active basis like 20, 30% of your users, you’re probably gonna do pretty well.
If you’re in social media,and your first batch of people signing up to your product are not like 80% retained, you’re not gonna have a massive social media site. And so, it really depends on the vertical you’re in, what the retention rates are.
What you need to do is have the tools to think about who out there is comparable. And how you can look at it and say, am I anywhere close to what real success looks like in this vertical?

North Star

Retention is he single most important thing for growth and retention comes from having a great idea, and a great product to back up that idea and great product market fit.
The way we look at whether a product has great retention or not is whether or not the users who install it. Actually stay on it long term, when you normalize on a cohort basis and I think that’s a really good methodology for looking at your product and saying, okay, the first 100, the first 1,000, the first 10,000 people I get on this, will they be retained in the long run?
So now how do you attack operating for growth? Let’s say you have awesome product market fit. You have built an e-commerce site and you have 60% of people coming back every single month and making a purchase from you. Which would be absolutely fantastic. How do you take that and say now it’s time to scale? Now it’s time to execute was the last thing in your thought and that’s where I think growth teams come in. Like my contrarian viewpoint or whatever is if you’re a start-up you shouldn’t have a growth team, the whole company should be the growth team. The CEO. Should be the head of growth. You need someone to set a North Star for you about where the company wants to go and that person needs to be the person leading the company, in my opinion from what I’ve seen.
Every different company when it thinks about growth needs a different north star. But when you are operating for growth, it is critical that you have that north star and you define it as a leader.

Magic Moment

magic moment on eBay when they visit the site and that’s the next most important thing to think about, is how do you drive towards the magic moment that gets people hooked on your service? So, what do you guys think the magic moment is for when you’re signing up to Facebook? You hit that big green button, what is the moment when users are like ha? See your friends. Zuck talked at Y Combinator about getting people to ten friends in 14 days. That is why we focus on that metric. The number one most important thing in a social media site is connecting to your friends. Because without that you have a completely empty news feed and clearly you’re not gonna come back. You’ll never get any notifications, you’ll never have any friends telling you about things they’re missing on the site. So for Facebook the magic moment is that moment when you see your friend’s face and everything we do on growth and if you look at the LinkedIn registration flow or you look at the Twitter registration flow or you look at what WhatsApp does when you sign up the number one thing all these services look to do is to show you the people you want to follow, connect to, send messages to, as quickly as possible. Because in this vertical, that’s what matters.
When you look on Airbnb and you find that first, you find that, that first listing that’s like a cool house that you can stay in and when you go through the door, that’s a magic moment.

Margin users

Think about the user on the margin, don’t think about where yourself when you’re thinking about growth. operating for growth, what you really need to think about is what is the north star of your company.
What is the one metric where if everyone in the company is thinking about it and driving their product was that metric and their actions towards moving that metric up, you know in the long run your company will be successful.
Have a north star and know the magic moment that when a user experiences that, they will deliver on that metric for you on the north star, and then think about the marginal user, don’t think about yourself.

These quotes are some notes about retention of growth lecture in YC by Alex Schultz. You can watch full lecture video on youtube .

Use Google Analytics to measure Retention

Google analytics added Cohort Analysis service as beta in Audience section. You can measure User Retention as metric option.