What You Need To Know: User Retention
User retention is all about keeping users on your platform or using your product for longer. As one of the most critical factors for revenue generation in a subscription business, user retention is worth optimizing. Design techniques are the primary way to address challenges with user retention.
What is User Retention?
User retention is one of the most important topics for any SaaS company — how many active users are on the app, and how many are still paying a subscription fee? The goal of the business is to reduce churn and keep users happy and engaged. User retention is heavily influenced by the user experience and product design.
Why Should We Care About User Retention?
In the subscription business model, user retention is the biggest driver of revenue because there isn’t an additional any additional acquisition cost associated with getting the user to pay that month’s subscription.
Having a subscription guarantees recurring revenue, but only if users aren’t leaving your platform faster than they join. The longer a user stays with the platform, the higher their lifetime value — meaning your initial investment to acquire them was worth it!
How Do We Improve User Retention?
Better design is the best way to improve user retention and gather information from users who do churn. Here are four ways to do it:
1. Design a Better Onboarding Process
Users who know how to use your product and get their work done are way more likely to keep using the product. Consider the user journey and create an easy, informative onboarding process that sets up your users for success.
2. Perform a Cohort Analysis
How long does it take for a user to get value from your product? How long until they lose interest? These questions and more can be answered with a cohort analysis — a study that groups users together by a common attribute, such as the date when they started using the product.
3. Test Users and Incorporate Feedback
Another stumbling block for users is poor user experience and difficulty accomplishing their work with your product. One way to uncover hidden issues is to perform user testing, which will reveal how users interact with the product and where they face challenges.
4. Track Engagement and Nudge
Finally, it’s important to understand which actions our “best” users (the ones who pay for and continue paying for the product) take. When we understand what steps are needed to convert customers, we can encourage these actions by tracking in-app events and nudging users to move forward before they lose interest.
Speaking of Design
Here’s the vocabulary you need to know to talk about user retention:
Churn: Churn is when a user decides to cancel their subscription and either leave the platform or leave the paid portion of the product. Churn can be measured on a monthly basis in terms of customers or revenue lost.
Cost of Acquisition (CAC): The cost of acquisition is the total cost required to encourage 1 new user to subscribe to a software service. This cost may include marketing, onboarding, setup and other one-time costs associated with activating the new user.
Lifetime Value (LTV): Lifetime value is the total revenue expected from a single subscribing user over the course of their subscription to the product.
Monthly Recurring Revenue (MRR): Monthly recurring revenue is the total amount of revenue a company derives from their users’ subscription payments in a month. For products which have an annual billing cycle rather than monthly, “Annual Recurring Revenue” may be more relevant.
Software-as-a-Service: Software-as-a-service is any type of software product which is delivered as a recurring subscription in exchange for customers to access the platform. Many popular apps and websites have used this business model because it guarantees recurring revenue from users who stay with the platform.
