How to Determine Product-Market Fit using Cohort Retention Analysis
A cohort retention analysis is a helpful tool for product teams to understand how many of their users return to their product and after what period of time. In this article we’ll cover four specific questions you can answer using a cohort retention analysis, “has my product achieved product market fit?”, “what is my window of opportunity to deliver an aha moment to my users?”, “how do I discover product growth opportunities” and “how can I increase my user retention?”.
Being able to answer each of these questions is critical to delivering the best customer experience and successful product.
Has my product achieved Product Market Fit?
When your product has achieved product market fit, your user retention will flatten out over time. If the line trends towards zero, users are not realizing value in your offering and not returning back to your product. This trend line down to 0 is also described as a having leaky bucket. No matter how good your customer acquisition is, ultimately you’re in trouble if you cannot deliver value and keep users coming back.
Your ideal user retention graph will look like a smile. This means that over time, you’re giving your users more reason to come back and adopt your product. This can come from introducing new product capabilities that users want and executing specific re-engagement efforts outside of your product to help them realize the value of your product.
What is my window of opportunity to deliver an aha moment?
To determine the window of time you have to deliver an aha moment to your users, you can look to the slope of the user retention curve. Using the example below you can see that we’ve retained 43% of our users after the first week. The steepness of the curve indicates that it’s within this window of time that we loose the most users. So we’ve got less than 7 days to help users find value in our product.
A weekly time frame is a good range for less transactional or business applications. For more consumer apps, you’ll want to measure your cohorts in days.
How do I discover product growth opportunities?
When you have multiple customer segments and/or types of users in your product, you’ll want to review the user retention for each segment as they will have different usage patterns. In the example below, the orange line indicates all users from your Enterprise accounts compared to the green line indicating all other users. The users within Enterprise accounts are retained at a much higher rate and show the increasing engagement over time.
How can I increase my user retention?
The first step to increasing your retention is to understand who are the users with the best retention rate and what are they doing in your product. Using the detailed cohort analysis below, we can see that users who signed up between April 2nd and April 8th have the highest retention over time.
The smile effect in your user retention report is what you strive for. This indicates a thriving customer base that is returning to use your product more and more over time.
For all users within this cohort I want to know three things; what features are they using, do they have common characteristics (demo/firmographic) and what was their signup source. With these three characteristics you can gain a complete picture of your ideal user profile & their motivation for using your product.
Armed with this information, you now can introduce personalized product experiences to guide all users to adopt the “aha” moments within your product.
Cohort analysis is one of many product analytics tools available within the Aptrinsic product experience platform. Start analyzing your product experience today with a free trial of Aptrinsic.
For more information, you can watch how Lyft’s product growth team interprets cohort retention analysis on this webinar hosted by Aptrinsic.
