Conversion, Churn, & Commitment

This is part 6 of a 6 part series building a Growth mindset, for life and work.

What do empires, multi-billion-dollar valuations and love all have in common? Whether the participants are citizens, customers or partners, they are all built from commitment. And when it comes to lasting commitment, there are only two numbers that matter. The first is how often someone does something meaningful, and the second is how long they keep doing it. Otherwise known as engagement and retention.

Moving Forward

We’ve already discussed that “meaningful” in this context is all about knowing how our product or service fulfills our customers’ needs. Once we know how our target market derives value from our product, there are a couple techniques that can drive further engagement; the most obvious and over utilized technique is developing new features. Blindly developing and releasing new features based on gut feelings is risky though. One way to mitigate the risk is to undertake customer research and develop MVPs. A variant on this theme is to make small pivots and release with A/B tests, again guided by data and statistics. As we iterate towards perfection, it’s imperative to remember to base new experiments off past results and not gut feelings.

Staying in Place

The other aspect of commitment is of course how long that commitment lasts. There are a few ways to measure retention, but one helpful metric is knowing roughly how many days lie between each meaningful action. For example, in general, dating apps are used every other/third day, whereas travel apps such as Expedia might be used on average once a month, and so “high engagement” will have different cadences in different spaces. Given a good baseline, we can compare how often something should be happening with how often some is happening, allowing us to benchmark how we’re doing in the marketplace, as well as how different customers are engaged relative to each other.

Specifically, we can start to measure how the size of our audience and how our audience engagement changes over the course of those time intervals. This yields D1, D2, D5, D14, and D30 retention — or in other words, how large a cohort is on their acquisition date, then how many of those people have engaged in the two, five, fourteen and thirty days respectively. If we plot these numbers over time, not only we can we see how our changes affect customers en mass, but we can also start to make some reasonable assumptions about the lifetime value of customers. One of the greatest insights from this process though, is being able interpret the rate of decay of our customer base as the life expectancy of our product.

Moving Backward

Much like how we won’t form deep friendships with everyone we meet, we also shouldn’t expect our entire audience to stay engaged — that’s okay. For those that choose not to stay engaged and churn though, we should at least begin to understand why. Again, this all ties back into understanding who our customers are, and understanding what value we provide. This is also where we encounter the adage “the best growth hack is a good product” again. If our churn profile closely matches our desired audience, it’s time to rethink things. Either our product isn’t ready, or we’ve started to break the hard-earned trust we’ve built with our customers. We only get so many chances to at a first date, and we only get so many chances to do right by our customers. This situation is worrisome, in that it’s indicative of squandering our chances.

The happy alternative to churn is the point where our customers are willing to pay for the value that our product or service delivers. This is known as monetization, and with software it’s one of the beautiful things about scale. If the need our service fulfills is shared by a large enough customer-base, then the marginal cost of software approaches zero. In economics, this point is known as cost-equilibrium. However, we can also take advantage of having zero-marginal cost, to offer multiple monetization points. This is precisely why freemium products can be so lucrative. Seufert’s Freemium Economics has an excellent discussion on this topic.

Through these six articles, we’ve covered the necessities to build a well-valued business and coincidentally, a well-measured life. We’ve discussed why awareness is a precedent to greatness, why intent and agility is more important than planning, as well as how to put that agility into practice. Then we discussed how to turn that mindset into more conversations, which in turn, into more customers, and then finally how to keep those connections. And while a great business and a great life are not by any means formulaic, there are a couple of common themes throughout which are hard-learned, rarely taught.

• We need to be empathetic, so that we can intimately understand our audience and the problem they’re facing, without having to ask — ultimately addressing the underlying need.
• We need to be adaptable, so that we can be guided by constant feedback and work on what is always going to have the most impact.
• We need to execute, so that we can actually deliver, realize that impact and change lives.

Have any feedback? Want to discuss more? Are you building something out and looking for advice on how to get more traction? Hit me up at harrison@dahme.ca