BEYOND THE BUILD

Hacking Growth Essentials — Part 7: Measuring, and Optimizing Retention

In the pursuit of growth, customer retention is a crucial yet often overlooked aspect of a successful strategy. Effective product growth teams must understand and manage the intricacies of customer retention, including its compounding value, key drivers, cohort analysis, and both initial and long-term retention strategies, to maximize customer lifetime value and drive business success.

Table of Contents

Understanding Retention: The Compounding Value, Drivers, and Benchmarks

The Power of Cohort Analysis — Measuring and Analyzing Retention

The Art of First Impressions: Strategies for Initial Retention

The Long Game: Mastering Long-Term Customer Retention

Other reads related to this series on Growth Hacking

Hacking Growth Essentials — Part 1: Building and Leading Growth Teams

Hacking Growth Essentials — Part 2: Discovering Products That Customers Must Have

Hacking Growth Essentials — Part 3: The Path to Sustainable Growth

Hacking Growth Essentials — Part 4: Achieving Operating Excellence

Hacking Growth Essentials — Part 5: Supercharging Customer Acquisition

Hacking Growth Essentials — Part 6: Cracking User Activation and Engagement

Hacking Growth Essentials — Part 7: Measuring, and Optimizing Retention

Hacking Growth Essentials — Part 8: Ins and Outs of Monetization

Hacking Growth Essentials — Part 9: The Relentless Pursuit of Growth

Welcome!

If you found this article helpful, be sure to follow me on Medium to stay updated on and explore my publications.

Nima Torabi — Medium

Photo by Joe Zlomek on Unsplash

Understanding Retention: The Compounding Value, Drivers, and Benchmarks

The key to driving sustainable growth lies not just in acquiring and activating new customers, but in fostering deep, lasting relationships with the ones you already have.

Customer retention is the bedrock upon which enduring success is built —

Retention measures the ability of a product to keep users active over time.

A truth that too many companies overlook in their relentless pursuit of the next shiny acquisition tactic.

But the data doesn’t lie:

The longer you retain customers, the more opportunities you have to earn revenue from them, whether through selling additional products and services, subscription renewals, or even the allure of your loyal customer base to advertisers.

In 2016, analysts believed that Amazon Prime without its staggering retention rates, might not have even been profitable.

The Compounding Value of Retention

The true power of retention lies in its compounding effect.

As you retain more customers over time, you generate higher current earnings and gain the ability to predict — and invest in — future growth with greater confidence.

Amazon’s reliable earnings per Prime subscriber have allowed the company to continually reinvest in the program, adding features like original programming to its video streaming service.

However, the benefits of retention extend far beyond the balance sheet.

The longer you retain customers, the more you can learn about their needs, desires, and pain points — insights that can be leveraged to tailor your offerings and promotions with laser-like precision.

And let’s not forget the amplifying effect that high retention has on word-of-mouth and viral marketing efforts, as satisfied customers become walking, talking ambassadors for your brand.

In essence, retention is more than just a metric;

It’s a revenue multiplier.

The longer you retain customers, the more opportunities you have to:

• Sell them more items or services
• Renew subscriptions
• Attract advertising revenue

Amazon Prime members, for example, purchase more than twice as much as non-Prime members. This increased revenue creates a virtuous cycle, allowing you to invest more in growth and improvement.

The Mathematics of Retention

When it comes to driving long-term growth and revenue sustainability, retention efforts outshine growth initiatives.

The Lifetime Value Equation: At the cohort level, the Lifetime Value (LTV) model sheds light on the impact of growth (cohort size) and retention on a company’s bottom line.

LTV = S x CM x [1 / (1 — r)]

Where S is the cohort size, CM is the contribution margin, and r is the retention rate.

While increasing cohort size (S) has a linear impact on LTV, the true power lies in the retention rate (r). When r exceeds 0.5, even small improvements in retention can outperform substantial increases in cohort size, thanks to the non-linear nature of the equation.

The implications are clear: if your retention rate is below 50%, your top priority should be improving it before expanding your acquisition efforts.

However, once you’ve crossed that threshold, doubling down on retention can yield disproportionate returns.

While the allure of growth is undeniable, the data speaks for itself:

Investing in retention tends to have a more significant long-term impact on a company’s bottom line.

However, it’s important to recognize that there is a limit to how much retention can be improved, as some level of churn is unavoidable in any business.

Additionally, companies must carefully analyze the tradeoff between tactics that increase average sales price (ASP) and their potential impact on retention.

While ASP increases may boost short-term revenue, they could also lead to higher churn rates, ultimately eroding LTV.

In the end, the key to sustainable growth lies in striking the right balance between acquisition and retention efforts, guided by a deep understanding of the underlying mathematics and a commitment to data-driven decision-making.

Understanding the Drivers of Retention

Before we dive into the tactics and strategies for hacking retention, it’s crucial to understand what drives customer loyalty in the first place.

• At its core, retention hinges on providing a high-quality product or service that continually addresses a genuine need or desire — something that your customers come to regard as a must-have.
• Achieving this elusive state of product/market fit is often the first step towards a stable retention curve — that coveted black line that signals a steady stream of loyal customers, rather than a declining gray one that spells trouble.
• But even after achieving that initial stability, retention can erode over time for a variety of reasons: the emergence of a disruptive competitor, a failure to communicate value effectively, product failures in building effective user habits, or perhaps a shift in customer needs that leaves your offering feeling stale or obsolete.

Hacking Retention: A Never Ending Pursuit

Growth teams should not just focus on identifying early signs of retention issues and fixing them.

While that’s important, the bigger opportunity lies in proactively pushing retention rates higher and higher over time.

Some products have a built-in advantage when it comes to increasing long-term retention.

These are products where the core value proposition gets better the longer you use them — referred to as “stored value.”

Examples include Evernote, Instagram, and QuickBooks.

However, even products with this stored value advantage cannot afford to be complacent. Assuming customers will stick around is a mistake.

The only way to keep customers truly engaged and loyal over the long run is through continuous improvement — constantly adding new features, new value propositions, and finding new ways to delight users.

Let’s take Facebook as a prime example.

• Despite having immense stored value in its social graph and network effects, Facebook does not coast on this. Instead, it continually experiments with new features, notifications, prompts, and ways to re-engage users day after day, year after year. And to innovate in new business avenues such as GenAI, Virtual Reality, RayBan Glasses, etc.

So while stored value provides an advantage, it is not enough on its own.

The most successful products and companies remain restless and relentlessly improve their offerings to foster lasting customer loyalty and fend off potential disruptors.

No matter what inherent advantages your product may have, you can never take retention for granted.

Continuous innovation, value addition, and engagement tactics are mandatory to keep pushing retention rates higher over time.

In short, you can only improve retention by:

• Applying the rapid experimentation process to build loyalty and habits
• Leveraging stored value and continually improving offerings
• Building loyalty and habit formation through regular communication, personalized experiences, and reward programs
• Identifying opportunities to improve retention through data analysis and customer feedback

Stored Value and the Smile Curve

The Evernote Paradigm — Perhaps no company has embodied the power of stored value quite like Evernote. Back in the early days, the note-taking app’s founders noticed a curious pattern: while many users initially drifted away after a few months of use, those who stuck around became increasingly engaged over time. The data told a remarkable story — a story captured in Evernote’s now-legendary “Smile Graph.” As users continued to invest in the service, adding more notes, more memories, and more pieces of their lives, their usage spiked. Not only that, but they became far more likely to upgrade to a paid subscription, with a staggering 8% of year-old users taking the plunge, compared to just 0.5% of newcomers. It was a revelation — a counterintuitive twist on the conventional wisdom that users either upgrade quickly or abandon ship. Evernote had cracked the code, turning their product into a repository of stored value that users simply couldn’t bear to part with. But Evernote’s success wasn’t just a fluke — it was a direct challenge to the prevailing industry mindset. For years, conventional wisdom had held that user activity rates inevitably declined over time, as the novelty wore off and users drifted away. Evernote flipped that script, proving that with the right approach, user engagement could increase the longer someone used a product or service. It was a wake-up call for the entire industry, a reminder that true retention mastery lies in fostering deep, lasting connections with our users.

At the heart of the Smile Graph lies a deceptively simple concept: stored value.

As users interact with our products and services, they’re not just consuming — they’re investing.

Every note they jot down in a note-taking app, every photo they upload to a social platform, every financial transaction they record in a budgeting tool — it all adds up, creating a tapestry of personal data that becomes increasingly valuable over time.

And here’s the catch: the more users invest in our offerings, the less likely they are to abandon them. It’s a virtuous cycle — the more they use our products, the more indispensable those products become, and the more they continue to use them.

So, how can we harness the power of the Smile Graph in our own products and services? The answer lies in a relentless pursuit of understanding our users, their motivations, and their ever-evolving needs.

It means embracing the concept of stored value from the ground up, designing experiences that encourage users to invest in our offerings, bit by bit, until they become indispensable parts of their daily lives.

It means continuously iterating and improving, adding new features and value propositions that keep our users engaged and excited, just as Facebook does with its constant stream of updates and innovations.

And perhaps most importantly, it means recognizing that retention is a journey, not a destination.

It’s a never-ending pursuit, a constant cycle of experimentation, analysis, and optimization, fueled by a deep, data-driven understanding of what truly drives user loyalty.

Measuring and Benchmarking Retention

Before you can hack retention, you need to understand what good retention looks like for your particular product or service.

This is where data becomes your guiding light.

Different industries and product categories will have vastly different expectations when it comes to retention rates and repurchase frequencies.

• While Facebook might aim for daily engagement, Apple knows that iPhone buyers might not upgrade for several years — a key insight that drove the company’s pivot and diversification into services like iCloud and Apple Music, allowing it to capitalize on retained customers between device launches.

That’s why it’s so crucial to benchmark your retention metrics against industry standards and the performance of your closest competitors.

Only then can you truly understand whether your retention rates are typical, exceptional, or in need of improvement.

Retention curves require long-term analysis and continuous product investment and development to sustain them [Source]

And let’s not forget the flip side of retention: churn.

Tracking the rate at which customers defect from your business is just as important as measuring those who stick around.

After all, a low churn rate is the ultimate sign of a healthy, thriving customer base

In essence, measuring retention is crucial, but it varies depending on your product or service. In action, track:

• Repurchase rates for e-commerce
• Subscription renewal rates for services
• Customer churn rate (the inverse of retention rate)
• Benchmark against industry standards and competitors
• Understand typical retention rates for your category

The Path to Retention Mastery

At the end of the day, mastering retention is about more than just implementing a few tactics or hacks.

It’s about fostering a deep, organization-wide commitment to delivering value, building loyalty, and creating experiences that become woven into the fabric of your customers’ daily lives.

It’s about riding the waves of motivation, capitalizing on those fleeting moments when your users are primed and ready to take action, and delivering prompts and experiences that feel like a natural extension of their desires and aspirations.

It’s about breaking down complex tasks into manageable steps, prioritizing competing behaviors, and always, always putting the user experience first.

Above all, it’s about embracing the growth hacking mindset — a relentless pursuit of experimentation, iteration, and data-driven decision-making that allows you to continually optimize and improve, turning fleeting customers into lifelong advocates.

Customer retention is the key to long-term growth and revenue. By understanding what drives retention, applying strategies to improve it, and measuring its success, you’ll unlock the compounding value of retention and take your product to the next level. Remember, retention is a revenue multiplier, and it’s time to start multiplying.

Photo by Simon Hurry on Unsplash

The Power of Cohort Analysis — Measuring and Analyzing Retention

One of the most effective ways to gain insights into retention is through cohort analysis.

At its core, cohort analysis is about breaking down your user base into distinct subgroups, or cohorts, based on shared characteristics.

This allows you to probe deeper into your retention data, uncovering the reasons why some users stick around while others churn.

Defining Your Cohorts

Depending on your business goals and objectives, you can define your cohorts in the following ways:

• Acquisition Cohorts: Group users based on the time they signed up or made their first purchase, such as Daily, Weekly, Monthly cohorts (e.g., users who signed up in January), Quarterly cohorts (e.g., users who signed up in Q1), Yearly cohorts (e.g., users who signed up in 2022)
• Acquisition Channel Cohorts: Group users based on how they were acquired, such as referral cohorts (e.g., users who came from a referral program), paid advertising cohorts (e.g., users who came from a paid ad campaign), organic search cohorts (e.g., users who came from organic search results).
• Behavioral and Usage Cohorts: Group users based on their behavior, such as active users (e.g., users who log in daily), inactive users (e.g., users who haven’t logged in in 30 days), purchasing cohorts (e.g., users who have purchased in the last 30 days)
• Demographic Cohorts: Group users based on demographic characteristics, such as age cohorts (e.g., users aged 25–34), gender cohorts (e.g., male or female users), location cohorts (e.g., users from a specific country or region)
• Product/service Cohorts: Group users based on the products or services they use, such as Product A cohorts (e.g., users who have purchased Product A), Service B cohorts (e.g., users who have subscribed to Service B), or Product A + Service B Cohorts
• Event-Based Cohorts: Group users based on specific events, such as users who completed a specific task or achievement or users who attended a specific event or webinar
• Hybrid Cohorts: Combine multiple criteria to create cohorts, such as users who signed up in the last 30 days and have made a purchase or users who came from a referral program and have logged in daily for the last week

If you don’t have tracking and reporting software, here is a cohort tracking spreadsheet template. And, here is how you can go about building a retention spreadsheet.

Use this spreadsheet for churn, MRR, and cohort analysis (Guest Post) at Andrew Chen

How to do your Cohorts analysis in Spreadsheet & Excel (A detailed guide)

The Power of Cohort Analysis

Cohort analysis is a game-changer for products looking to boost retention and drive growth.

By diving deeper into retention data, you can uncover trends, patterns, and insights that might otherwise remain hidden.

Here’s how cohort analysis can help:

• Probing Deeper into Retention Data: Aggregate retention metrics can often mask underlying issues or opportunities. Cohort analysis allows you to peel back the layers, uncovering trends and patterns that would otherwise remain hidden. Perhaps a specific marketing campaign brought in users with unusually high churn rates, or a product update inadvertently alienated a particular user segment. With cohort analysis, you can identify these anomalies and take action.
• Identifying the Drivers of Retention and Churn: Why do some users stick around while others churn? Cohort analysis provides invaluable insights into the factors that influence user behavior. By correlating retention rates with cohort characteristics, you can pinpoint the key drivers of loyalty — and the pain points that lead to abandonment. Armed with this knowledge, you can develop and experiment with targeted strategies to improve retention and mitigate churn.
• Revealing the Overall Health of Your Customer Base: Retention is a leading indicator of your product’s long-term viability. By tracking retention rates over time for each cohort, you can monitor the overall health of your customer base and identify problematic trends before they spiral out of control. Is a particular cohort exhibiting unusually high churn rates? Is a once-loyal segment starting to disengage? Cohort analysis empowers you to take proactive measures, addressing issues before they become existential threats.

[Source] [Source]

Tools and Implementation

Of course, effective cohort analysis requires more than just a spreadsheet and some elbow grease. You will need:

• Sophisticated analytics capabilities: You’ll need sophisticated analytics tools that can slice and dice your data in myriad ways, revealing patterns and correlations that would be impossible to spot with the naked eye.
• A user database set up to separate users by relevant variables: You need a user database that allows you to segment users by cohort and track retention rates over time.
• Tools like Mixpanel, Kissmetrics, or Amplitude: These tools are designed specifically for this purpose, offering robust cohort analysis capabilities that put basic web analytics tools to shame. And while Google Analytics has made strides in this area, it still needs more complex use cases.

Choosing the Right Retention Type: X-Day vs Unbounded Retention

When it comes to measuring user retention, there are two main types to choose from:

• X-day retention, and
• Unbounded retention

Each type has its strengths and weaknesses, and the right choice depends on your analytical objectives and user behavior.

• X-Day Retention: X-day retention measures the percentage of users who come back on a specific day. For example, if you want to know how many users return on Day 7, Day 14, or Day 30, X-day retention is the way to go. This approach is considered the most conservative retention method, as it only counts users who return on the exact specified day.

X-day retention is suitable for short-term analysis, such as:

• Measuring onboarding funnels: Track how many users complete specific tasks or milestones within a set timeframe.
• Marketing campaigns: Evaluate the effectiveness of marketing campaigns by monitoring user retention in the short term.

However, X-day retention may not be the best choice for long-term analysis, as it may not account for users who return after the specified day.

Unbounded retention, on the other hand, measures how many users come back on a specific day or later. This approach provides a more comprehensive view of user retention, as it accounts for users who return at any point after the specified day.

Unbounded retention is suitable for:

• Measuring long-term user behavior: Track user retention over extended periods to identify trends and patterns.
• Segmenting users into retention groups: Group users based on their retention behavior, such as 6-month, 1-year, or 2-year retention.

Unbounded retention is also the inverse of churn, allowing for data validation and testing. By tracking how many users come back, you can also identify how many users have churned, providing a more complete picture of user behavior.

I’d love to hear your thoughts!

Share your insights and feedback in the comments below and let’s continue this discussion.

Nima Torabi — Medium

Photo by Sincerely Media on Unsplash

The Art of First Impressions: Strategies for Initial Retention

Initial Retention refers to the process of engaging and retaining customers during the early stages of their journey with a product or service, typically spanning from the initial sign-up or purchase to the first few weeks or months.

The goal is to solidify the first impression, ensure a smooth onboarding experience, and encourage users to experience the core value of the product.

The Cost of Losing Customers

The cost of acquiring a new customer is significantly higher than retaining an existing one.

In fact, studies have shown that acquiring a new customer can be 5–25 times more expensive than retaining an existing one.

This is a staggering statistic, especially considering the intense competition in today’s market.

The Early Warning Signs

One of the most critical aspects of customer retention is identifying the early warning signs of churn.

This is where data becomes our best friend.

By closely monitoring user behavior, usage patterns, and engagement metrics, we can spot those telltale signs of declining activity before it’s too late.

• For example, let’s say you’re working on a grocery delivery app, and you notice a significant drop-off in usage after the first month. This is a red flag that demands immediate attention. It’s time to put on our growth-hacking hats and start experimenting.

Growth Hacking: The Retention Superpower

Growth hacking is all about rapid experimentation, data-driven decision-making, and a relentless pursuit of growth. But what makes it truly powerful is its ability to tackle customer retention head-on.

By leveraging growth hacking techniques, we can quickly identify churn patterns, test retention strategies, and iterate until we find the perfect formula for keeping our users hooked.

Rapid Experimentation and Results: The beauty of growth hacking is its ability to produce rapid results. By testing multiple strategies simultaneously, product growth teams can quickly determine which ones are most effective.

• For example, the grocery app team might test the effectiveness of additional mobile notifications, in-app promotions, and new feature development to see which one resonates most with customers.

Continuous Improvement: The results from initial experiments are just the beginning. Product teams should continuously craft and test new growth hacking strategies to boost customer retention further. This iterative approach ensures that companies stay ahead of the curve and continue to meet the evolving needs of their customers.

Mastering Initial Retention: The Foundation

Let’s start with the basics — initial retention.

This phase is all about solidifying that crucial first impression and ensuring your users stick around long enough to experience the true value of your product.

It’s like the first few dates in a budding relationship — you want to make sure you’re putting your best foot forward and keeping that spark alive.

To hack initial retention, we need to get our hands dirty with data.

• Analyze those cohort reports, identifying the points where users start to drop off or defect.
• Once you’ve pinpointed those critical moments, it’s time to deploy surveys and gather insights straight from the source — your users.
• Armed with this invaluable data, you can start experimenting with solutions.
• Refine that new user experience until it’s reached an optimal smoothness level.
• Guide your users to experience the core value of your product as quickly as possible — i.e., that aha moment — like a skilled concierge leading them to the best seats in the house.
• Don’t forget the power of triggers — those well-timed nudges that can cement the usefulness and value of your product in your users’ minds. Whether it’s a perfectly crafted push notification or a personalized email, these triggers can be the difference between a fleeting fling and a lasting commitment.

Building Habits for Medium-Term Retention: The Hook Model

The goal in the medium phase of retention is to make the product’s use habitual for customers.

This can be achieved by convincing customers of the ongoing rewards they’ll receive from returning to the product or service.

The Hook Model by Nir Eyal explains how engaging products create habit-forming behaviors by guiding users through a cyclical process called the “engagement loop” or “hook cycle.” This loop consists of four key stages:

1. Trigger: An external trigger prompts the user to take a specific action within the product. This could be a push notification, an email, or seeing the app icon on their home screen. Gradually, external triggers lead to internal, subconscious triggers.
2. Action: The user takes the action in response to the trigger.
3. Variable Reward: The user receives a variable reward for taking the action, which reinforces the behavior and keeps them engaged.
4. Investment: The user puts effort into the product (e.g., creating content, building profiles), increasing their emotional investment and likelihood of returning (i.e., stored value and the smile curve)

By repeatedly exposing users to these external triggers and rewarding their actions, the product aims to create associations that lead to internal, subconscious triggers.

• For example, a user may initially open a social media app because they received a push notification (external trigger). However, after repeatedly experiencing the rewarding feeling of connecting with friends and being entertained by content (variable rewards), they may eventually open the app out of boredom or loneliness (internal triggers) without needing an external prompt.

The key is that through this cyclical process of triggering desired actions and providing variable rewards, the product becomes more valuable and integrated into the user’s life.

The investment phase, where users put effort into the product (e.g., creating content, and building profiles), further increases their emotional investment and likelihood of returning.

By optimizing this engagement loop and creating an association between the product and internal emotional triggers, products can foster habitual usage and keep users coming back without relying solely on external prompts or expensive marketing tactics.

The Hook Model provides a framework for designing experiences that transition users from external triggers to internal, subconscious ones, leading to long-term engagement and habit formation.

Growth teams should identify the optimal number, method, and cadence of triggers needed to build habits and keep them reinforced.

The Case of Amazon Prime

Amazon’s Prime program is indeed a prime example of powerful habit creation through the implementation of the Hook Model and engagement loops.

Let’s break down how Amazon has masterfully designed Prime to foster habitual usage:

Stage 1: Trigger

• External Triggers: Amazon employs various external triggers like promotional emails, app notifications, and website banners to remind customers about Prime benefits and prompt them to make purchases.
• Internal Triggers: After repeated exposure to the rewards of Prime, customers develop internal triggers. For example, the need for convenience or instant gratification can prompt them to turn to Amazon for their shopping needs without any external prompts.

Stage 2: Action

• The desired action is for customers to make purchases on Amazon, leveraging their Prime membership benefits.

Stage 3: Variable Reward

• Free and fast shipping: Prime members receive free two-day (or faster) shipping on millions of items, providing a sense of instant gratification and cost savings.
• Access to Prime Video, Music, and other services: These additional perks add value and variety to the rewards, keeping customers engaged.
• Validation of the subscription fee: Every time customers see how much they’ve saved through Prime, it reinforces the value of their membership investment.

Stage 4: Investment

• The $99 (or regional equivalent) annual subscription fee acts as a significant investment, both financially and psychologically, increasing customers’ commitment to the service.
• Building wish lists, setting up payment methods, and customizing preferences further deepen the investment in the Amazon ecosystem.

By mapping out this engagement loop and optimizing each stage, Amazon has created a powerful habit-forming cycle.

The core value proposition of Prime (fast, free shipping, and additional perks) is continuously reinforced through variable rewards, prompting customers to keep returning to Amazon for their shopping needs.

Amazon closely monitors and optimizes this loop through data analysis and experimentation. They may test different trigger mechanisms (e.g., personalized recommendations or limited-time offers), tweak the rewards (e.g., introducing new Prime services), or streamline the investment phase (e.g., simplifying checkout processes).

By continuously refining their engagement loop and delivering on the core value proposition, Amazon has successfully transformed Prime into a habitual behavior for millions of customers worldwide.

Improving Perceived Value and Retention

Improving the perceived value of rewards is a powerful strategy for driving greater customer retention and fostering habit formation. Here’s how growth teams can leverage this approach:

• Experiment with a Range of Rewards: Growth teams should continuously experiment with offering customers a diverse array of rewards. These rewards could take various forms, such as Exclusive discounts or promotions, Early access to new features or content, Personalized experiences or recommendations, Gamification elements like badges, leaderboards, or achievement milestones, Loyalty programs or subscription tiers with increasing benefits. By providing a range of rewards, teams can cater to different customer segments and motivations, increasing the likelihood of resonating with each user’s perceived value.
• Encourage Desired Actions: To maximize the impact of rewards, growth teams should design them to incentivize specific desired actions from customers. These actions could include: Completing onboarding or tutorial steps, Engaging with key features or content, Sharing or referring the product to others, Providing feedback or participating in the community, Upgrading to a paid plan, or making purchases. By tying rewards to desired actions, teams can reinforce the behaviors that drive long-term engagement and retention.
• Leverage Cohort Analysis: Cohort analysis is a powerful tool for identifying the most engaged and valuable customer segments. By analyzing cohorts based on factors like usage patterns, feature adoption, or purchase behavior, growth teams can gain insights into Which features or experiences provide the greatest perceived value and drive retention? Which customer segments are most likely to respond positively to specific types of rewards? How do different rewards impact retention rates across cohorts? Armed with these insights, teams can tailor their reward strategies to maximize perceived value and retention for their most valuable customer segments.
• Continuously Optimize and Iterate: Customer preferences and perceptions of value can shift over time. Therefore, growth teams should continuously monitor the effectiveness of their reward strategies and iterate based on data-driven insights. This may involve: Adjusting the types, timing, or frequency of rewards offered, Personalizing rewards based on individual customer behavior and preferences, Introducing new reward tiers or levels to maintain a sense of progression and achievement, and Sunsetting or retiring rewards that no longer resonate with customers. By continuously optimizing and iterating on their reward strategies, growth teams can ensure that they are consistently delivering perceived value and fostering long-term customer retention and habit formation.

The key is to create a virtuous cycle where customers perceive genuine value in the rewards offered, take the desired actions to earn those rewards, and become increasingly invested in the product or service as a result.

Applying the Hook Model and Engagement Loops to Products

Growth teams should apply the Hook Model and engagement loops to their products by:

Other product and growth teams can apply this framework to their own products by:

• Identifying the core value: Determine the unique benefits your product offers and how they can be leveraged to create an engagement loop.
• Designing the trigger: Develop an appealing trigger that encourages customers to take the first step, such as a free trial or limited-time offer.
• Crafting the action: Make the action easy and intuitive, ensuring a seamless user experience.
• Delivering the reward: Provide instant and meaningful rewards that reinforce the behavior, such as exclusive content or priority customer support.
• Encouraging investment: Encourage customers to invest time, money, or effort in your product, increasing their commitment to the engagement loop.
• Measuring and optimizing: Continuously monitor customer behavior, refine the engagement loop, and adjust triggers, actions, and rewards to maximize effectiveness.

For example, a video streaming service could measure the effectiveness of triggers that lead to discovery of new shows compared to triggers that lead to completion of series or shows already in progress.

The Power of Tangible and Experiential Rewards

While traditional tangible rewards like savings, coupons, and gifts are effective, experiential rewards can be just as powerful.

Experiential rewards are the rewards that tap into our deeper human desires — the need for social recognition, a sense of belonging, and the thrill of personalized experiences.

• Think about it — the “Like” feature on Facebook has been a driving force behind the habitual sharing of photos and updates.
• Frequent flyer programs have long leveraged social rewards like improved status, exclusive lounge access, and priority boarding to foster loyalty that goes beyond mere discounted airfare.

Brand Ambassador Programs: The Ultimate Loyalty Hack

Speaking of experiential rewards, let’s talk about brand ambassador programs.

These programs are the ultimate fusion of social recognition and tangible perks, and they’ve proven to be powerhouses when it comes to boosting retention and habit formation.

• Take Yelp’s Elite Squad program, for example. By offering special recognition to their most engaged users, along with a slew of perks like early access to events and exclusive offers, Yelp has created a community of passionate evangelists who keep coming back to contribute reviews and spread the word.
• Or consider the American Express Centurion card — the epitome of status and exclusivity. With its shroud of secrecy and coveted perks, this card has become the ultimate symbol of luxury and prestige, fostering a level of loyalty that transcends mere financial incentives.
• And let’s not forget the brilliant minds at theSkimm, who have leveraged their “Skimm’bassador” program to grow their daily readership to an impressive 3.5 million. By offering branded merchandise, networking opportunities, and public recognition, they’ve tapped into the power of social rewards and created a legion of loyal brand advocates.

Recognition of Achievements: The Dopamine Hit We All Crave

Another powerful reward strategy lies in recognizing customer achievements and milestones.

It’s the digital equivalent of a pat on the back, and it taps into our innate desire for validation and accomplishment.

• Think about the rush you feel when Fitbit sends you a congratulatory notification for hitting your 10,000th step, or when Medium celebrates your article reaching 100 recommendations.

It’s a dopamine hit that keeps us coming back for more.

And let’s not forget the power of endorsements and social proof.

• When LinkedIn notifies you that someone has endorsed your skills, or when Twitter lets you know that your post has been liked or retweeted, it’s a subtle yet powerful form of recognition that reinforces our sense of belonging and achievement.

Customization: The Ultimate Expression of Understanding

Personalization and customization are the holy grail of customer rewards.

The Inner Workings of Spotify’s AI-Powered Music Recommendations: How Spotify Shapes Your Playlist

In today’s data-driven world, companies have the power to truly understand their customers on an individual level and to tailor experiences that feel like they were crafted just for them.

• Think about the magic that Amazon weaves with its personalized product recommendations.
• Or how Spotify, YouTube, or Netflix builds your content consumption playlists.

This level of customization isn’t just a nice-to-have — it’s a game-changer.

It’s the ultimate expression of understanding your customers, anticipating their needs, and delivering experiences that feel like they were made just for them.

And the best part? This level of personalization is no longer the exclusive domain of tech giants.

With the rise of powerful tools like Salesforce Marketing Cloud, Optimizely, and HubSpot, even the smallest teams can tap into the power of customization and deliver truly personalized experiences.

The Path to Personalization — Start Small, Think Big: Now, I know what you’re thinking — “This all sounds great, but where do I start?” Well, the answer is simple:

Start small, but think big.

Begin by experimenting with personalization in your email communications. Most marketing software these days allows you to insert recipients’ names, deliver different content based on past behavior, and even tailor offers to specific customer segments.

By starting small and gathering data, gauge the effectiveness of personalization and decide whether to invest further in more advanced strategies.

The key, as with any growth hacking endeavor, is to embrace a mindset of continuous experimentation, testing, and iteration.

Finding this article useful?

For more insights like this, be sure to follow me on Medium and subscribe to get my updates in your email.

Get an email whenever Nima Torabi publishes.

Photo by Nick Fewings on Unsplash

The Long Game: Mastering Long-Term Customer Retention

Acquiring new customers is crucial, but long-term success hinges on keeping existing ones engaged and loyal. Why?

Because long-term retention unlocks repeat business, positive word-of-mouth, and valuable feedback, ultimately driving revenue and growth.

Plus, it reduces costs associated with acquiring new customers, support, and churn, while increasing efficiency, customer lifetime value, and providing a competitive advantage.

To thrive, growth teams must prioritize sustainable customer retention through strategies like leveraging anticipation and innovation, resurrecting lost customers, and balancing optimization with continuous growth.

Using “Coming Soon” Announcements to Boost Customer Retention

Let’s face it, we’ve all been there — eagerly awaiting the release of a new gadget, a software update, or the next installment of our favorite TV series. There’s something about the promise of something new, something better, that ignites a fire within us, a burning desire to experience it firsthand.

The Power of Anticipation: Communicating upcoming offerings to customers can be a powerful retention hook, particularly for SaaS products, video games, and content providers like streaming services.

By leveraging customers’ anticipation and desire to experience the promised new features or content, you can incentivize them to remain subscribed or engaged with your service.

Companies like Netflix, Salesforce, and Apple have successfully employed the “coming soon” tactic to retain customers.

• Netflix has perfected the art of spacing out the release of new seasons of their original series, keeping subscribers hooked and eagerly awaiting the next binge-worthy installment. It’s a brilliant strategy that keeps us glued to our screens, counting down the days until we can indulge in our latest obsession.
• Salesforce, on the other hand, has turned its major product updates into yearly events, enticing customers to stay subscribed with the promise of must-have new features and enhancements. It’s a masterclass in building anticipation and fostering loyalty through the allure of what’s to come.
• And let’s not forget Apple — the undisputed king of hype. From the moment they tease their latest and greatest device, the world holds its breath, eagerly awaiting the chance to upgrade to the shiniest new object of desire.

The “Coming Soon” Hack in Action: Perhaps the most compelling example of the power of “Coming Soon” comes from the world of premium television. Remember HBO’s “Rome”? That lavish, big-budget production that cost a staggering $9 million per episode? Well, according to Bing Gordon, a venture capitalist at Kleiner Perkins Caufield & Byers, the mere announcement of the show’s impending arrival was enough to keep HBO’s customer churn rates at near zero in the months leading up to its premiere. Think about that for a moment — subscribers were so captivated by the promise of this highly anticipated series that they stuck around, even if they didn’t ultimately watch it. And those captured revenues from retained customers? They more than covered the show’s exorbitant production costs.

Experimentation and Calibration: “But what if we promise too much, too soon? Won’t that just irritate our customers and drive them away?” There’s a delicate balance to strike when it comes to the timing and messaging of “Coming Soon” announcements. Tease too early, and you risk frustrating your audience with excessive delays. Tease too late, and you might miss the window of opportunity to capitalize on that delicious sense of anticipation.

That’s why experimentation is key.

By carefully calibrating the timing and messaging of your “Coming Soon” campaigns, you can avoid the pitfalls of over-promising and under-delivering.

Measuring the Impact of “Coming Soon”: Imagine you’re a video streaming company, and you’ve just secured the rights to an incredibly popular series that hasn’t been available on your platform before. The show won’t be ready for another three months, but you suspect that the mere promise of its arrival could be enough to keep subscribers hooked. So, you run an A/B test. The control group receives a typical experience, while the experiment group receives a series of tantalizing email notifications about the upcoming series, whetting their appetite for what’s to come. By comparing the retention rates of these two groups, you can quantify the impact of your “Coming Soon” strategy and make data-driven decisions about how to proceed.

If the results are promising, you can double down on the tactic, integrating “Coming Soon” announcements into your regular customer communications, continually stoking the flames of anticipation and driving growth through the power of what’s next.

Integrating “Coming Soon” into Customer Communications: If the “coming soon” strategy proves effective, it can become a permanent part of customer communications to retain subscribers and drive growth continually.

By regularly teasing upcoming features or content, you can maintain a loyal customer base eager for the next release.

The Long Game: Mastering Sustainable Customer Retention

In the ever-evolving landscape of customer retention, one truth remains constant:

Achieving long-term success requires a delicate balance between optimizing existing features and introducing new ones.

The Optimization Imperative: At the core of any successful retention strategy lies the optimization of your current product features, notifications, and rewards. This is the bread and butter of keeping your users happy and highly active, day in and day out.

By continuously refining and enhancing the experiences that your customers have come to love, you foster a sense of loyalty and engagement that transcends fleeting trends.

However, optimization alone is not enough to sustain long-term retention. Complacency is the enemy, and stagnation is a surefire path to irrelevance.

The Innovation Imperative: To truly thrive in the long run, you must complement your optimization efforts with a steady stream of innovation. Introduce new features, new experiences, and new ways to delight your customers over an extended period.

This constant evolution not only keeps your product fresh and exciting but also demonstrates your commitment to meeting the ever-changing needs of your user base.

The Balancing Act: Avoiding Feature Bloat: One of the most insidious threats is the dreaded “feature bloat” — the tendency to pack too many features into a product, ultimately overwhelming users and obscuring the core value proposition.

More is not always better, and that introducing new features without careful consideration can have disastrous consequences for user retention.

So, how do you strike the perfect balance?

The answer lies in a combination of careful timing, data-driven decision-making, and a deep understanding of your users’ needs and preferences.

The Role of the Product Growth Team: These data-savvy warriors are the key to evaluating the appeal of planned new features before they ever see the light of day. By experimenting with offering customers prototypes or beta versions of new features, the growth team can gather invaluable insights into what resonates and what falls flat. They can analyze user behavior, gather feedback, and refine the features until they’re primed for widespread adoption. But their role extends far beyond new feature development. Growth teams should work hand-in-hand with product teams, sharing data and insights to uncover new optimization opportunities and refine existing features for maximum retention.

This collaborative approach ensures that every aspect of your product is continuously evolving to meet the needs of your users.

The Continuous Cycle of Retention: Long-term customer retention is a continuous cycle of optimization and innovation, a never-ending pursuit of delighting your customers and keeping them hooked on your product.

To master this cycle, you must embrace a mindset of sustainable growth.

Strike the perfect balance between refining your existing features and introducing new ones, always guided by data, user feedback, and a deep understanding of your users’ needs and desires.

Mastering Long-Term Customer Retention

Achieving long-term customer retention requires a thoughtful and ongoing approach.

Ongoing Onboarding — Leading Users Along a Learning Curve: Let’s start with a fundamental truth: customer retention is not a one-and-done affair. It’s a continuous journey, a never-ending quest to keep your users engaged, delighted, and hungry for more. As new features are introduced and insights are gained about how your most avid users engage with your product, it’s crucial to educate and guide your customers on deriving maximum value. Ongoing onboarding or “ramp up” is a choreographed progression that leads your users on a continuous journey of discovery. It’s a developmental process that starts with small, simple objectives and incrementally builds mastery over time.

Imagine you’re introducing a game-changing new feature to your product. Instead of overwhelming your users with a deluge of information, you guide them through a carefully curated learning curve.

New features are brought to their attention gradually, allowing them to tackle one challenge at a time, mastering each step before progressing to the next.

Additionally growth teams need to take this concept even further by testing and optimizing the onboarding messaging itself.

Experiment with different versions of email explanations, in-product promotional videos, and more, continuously refining the journey to ensure maximum feature adoption and long-term retention.

Winning back lost customers

Winning Back Lost Users: Winning back users who’ve abandoned a product is called resurrection in growth circles. The growth hacking process can help discover experiments to run to win back lost customers who have disappeared off your radar.

• Investigating Why People Leave — Understanding the Reasons: The first step in considering experiments to try based on lost customer feedback is to understand whether people who leave are ones you can control or address. If the reasons are controllable, design new email and retargeting ads encouraging people to reinstall the app or address the issue.
• Resurrection Flow — A Series of Targeted Communications: When teams notice that a customer’s purchasing or a user’s activity has dropped to zero, they should be added to a resurrection flow. This means sending a series of email communications or targeted ads designed to win them back, often by reminding them of the aha moment or core value that once drew them to the product.
• Custom Email and Push Notification Campaigns — Personalized Win-Back Efforts: By creating specific custom email and push notification campaigns just for customers who have become detached or inactive, companies can sometimes bring them back in considerable numbers. This can often be done with less cost and effort than recruiting brand-new customers.
• Experimentation and Frequency — Optimizing Messaging: Experiment with frequency, duration, and wording of messaging to ensure that you aren’t annoying or further alienating lost customers.

Remember that not every battle can be won. At some point, you must accept that certain users may never return, no matter how compelling your efforts. In those cases, it’s best to gracefully bow out and focus your energy on more fertile ground.

The Revenue Opportunity: Every time you successfully resurrect a lost customer, you’re not just winning back a user — you’re unlocking a stream of ongoing revenue and potential growth.

These are customers who have already experienced the value of your product, and by reigniting their passion, you’re opening the door to increased engagement, upselling opportunities, and even word-of-mouth referrals.

So, while the primary focus should always be on early retention and nurturing your new users, never underestimate the power of resurrection.

It’s a valuable strategy that can pay dividends in the long run, contributing to the overall health and success of your business.

Thanks for reading!

To stay connected and get more insights like this, be sure to follow me on Medium.

As a fellow product enthusiast, be sure to connect with me on LinkedIn to continue this discussion, network, and access my professional network.