This article contains excerpts from Amplitude’s “Mastering Customer Retention Strategy" playbook.
Many organizations, particularly startups, dream of exponential growth, causing them to fixate on user acquisition at any cost. But in reality, the viral growth stories that make the headlines, like Facebook, Uber, and Airbnb, are the exception, not the norm. Though new user acquisition is essential to fuel sustainable growth and generate revenue, you should focus on acquisition’s less-flashy cousin—user retention.
Without retention, your user base is like a leaky bucket. Even the most robust go-to-market strategy and the heaviest marketing and advertising investments are only useful with equal focus on retention to drive long-term product growth. Although the internet is rife with short-sighted retention hacks, high-performing companies have a deliberate and systematic strategy in place to improve user retention at various user lifecycle stages.
That’s why we built our “Mastering Customer Retention Strategy" playbook, which includes an adaptable, repeatable retention framework that you can apply at all stages of growth—for any product type or vertical. But before jumping headfirst into our framework, let’s explore the top three reasons you should pay attention to user retention.
- Retention measures how many customers use your product over time. The goal is to acquire customers and keep them for the long term.
- Retaining existing customers is easier and less costly than acquiring new ones, so measuring and optimizing customer retention is vital to revenue.
- Retention impacts all your other key metrics and can help you project your profit and growth. Measuring retention gives you invaluable insight into your product’s value to customers so you can continuously improve.
- Leading companies, including WeMoney, Rappi, and ShowcaseIDX, use Amplitude to track and improve retention.
- The Mastering User Retention Playbook provides a go-to guide for user retention.
What is retention?
At a high level, retention measures how many users return to your product and stay with your business for the long term. It demonstrates your ability to stimulate and engage customers so they spend more time and money with your products and services.
Retention impacts every critical business metric you and your investors care about—active user count, engagement, customer lifetime value, payback period, and more.
“Every improvement you make to retention also improves all of these other things: virality, LTV, payback period, etc. It is literally the foundation to all of growth, and that’s really why retention is king.”
Why should you focus on user retention?
A common misconception is that retention only matters once your company reaches a particular growth stage. But here are three critical reasons to pay attention to retention from day one.
#1: It’s easier—and less expensive—to retain than acquire users
Focusing on new customers is essential, especially for brand-new companies—if you don't have new customers, you can't turn them into existing customers.
But once acquired, it’s easier and less expensive to retain them than to acquire new customers. A recent SimplictyDX research indicates that customer acquisition costs have increased 222% from 2013 to 2022. Meanwhile, loyal customers who make repeat purchases and subscribers who provide reliable monthly recurring revenue have a higher customer lifetime value for your bottom line.
Additionally, by focusing on retention, you gain better insight into the behaviors and preferences of your long-term, loyal customers. This empowers you to be smarter and more targeted in your prospect marketing, creating a positive customer acquisition and retention cycle.
Real-life customer example: WeMoney
WeMoney is a social and economic wellness mission-driven company whose free app helps customers track and crush debt. Using Amplitude Analytics, the WeMoney team knows precisely what they need to know and how to act to improve customer retention.
For example, using the data-driven power of Amplitude, the WeMoney team realized that customers who set money goals within the first three days of onboarding had a higher retention rate at the 12-month mark than those who didn’t. But the feature was buried on their home page and not easy to find.
To improve customer retention, they built goal-setting into their initial onboarding process, which led to a 20% increase. The WeMoney team also used insights from the high-retaining cohort to create lookalike audiences and incorporate personalized messages related to their savings goals, helping them reduce customer acquisition costs by 2X.
#2: Your retention helps project profit and growth
Every investor wants to know your business’ projected profits and growth, and understanding your retention can help in these projections. Your retention rate impacts overall profitability, from your active user count to your payback period.
A company that retains its users increases its revenue and becomes profitable faster than one that does not. If the retention rate exceeds the acquisition rate, your product gains users—and revenue—over time. Alternatively, if your retention rate is lower than your customer acquisition rate, you’re experiencing a net loss of customers.
Filling the top of your funnel doesn't matter if you’re losing users; the long-term growth of your product and the health of your business depends on how well you retain users. Your retention demonstrates your product’s actual value.
Real-life customer example: Rappi
Rappi is committed to driving growth in Latin America by accelerating the adoption of e-commerce. While it started as a restaurant delivery service, it quickly expanded to groceries, medicine, clothes, and electronics.
One of Rappi’s big bets was to create a Prime program that offers subscribers unlimited deliveries for a flat monthly fee. Leveraging Amplitude’s cohorts, precision tracking, and user segmentation, they confirmed the success of their initiative: Prime users place 3X more orders per month relative to other users, and their average spend per order is 10% higher.
Then, using Amplitude’s retention analysis capabilities, they compared Prime subscribers to Non-Prime users and saw a 2.5X retention rate increase for their Prime subscribers. These insights confirmed that encouraging users to become Prime members would fuel both customer retention and revenue.
#3: User retention provides insight into your product’s value
When users get value from your product, they use it and continuously return. Your product's overall quality and performance can significantly impact retention. Understanding user retention helps you learn how users interact with your product to identify and optimize the good and diagnose and fix the bad.
In the WeMoney story mentioned above, retention analysis revealed the value of the app’s goal-setting capability, and the team incorporated it into their user onboarding to drive higher new user retention. You could also use these insights to emulate a feature’s stickiness across other features or reactivate dormant users. For example, you could send a push notification to dormant users encouraging them to perform a specific action in your product, like setting a savings goal.
Conversely, if you discovered that a specific feature was associated with higher customer churn—or a retraction detractor—then you could work to fix the issue. Common detractors include bugs, crashes, and slow load times. If your app performance is unreliable, users will quickly give up and abandon your app. Fixing retention detractors can provide massive wins.
Real-life customer example: Showcase IDX
Amplitude customer Showcase IDX is the leading IDX WordPress plugin for real estate that allows realtors to display local MLS listings directly on their websites. The engineering and product teams continually use data to refine their user’s overall search experience and help them find a home they love.
Using retention data from Amplitude Analytics, the team identified an issue with their “save search” capability stemming from its location and color. Starting with their search function, the Showcase IDX team used insights from Analytics to redesign their UI and experienced a 20-25% improvement in retention.
Start optimizing your retention with Amplitude’s user retention playbook
We’ve covered three critical reasons why you should pay attention to retention, and admittedly, the list could be even longer. But depending on your organizational maturity, you might be thinking, “Great, another metric to track and measure?” or, “Where do I start?”
Meet the “Mastering Customer Retention Strategy" playbook. This playbook goes beyond the “why” of measuring retention covered in this blog to the “what, when, and how.”
With this playbook, you'll learn:
- The importance of analyzing retention at different stages of a user's lifecycle.
- How to identify user behaviors and actions correlated with retention and the best way to calculate it for your business.
- How to convert newly acquired users into ongoing users.
- How to turn current users into more engaged power users.
- How to reactivate dormant users.
This framework is an adaptable, repeatable strategy that you can apply for products at all stages of growth and in all verticals. The team at Amplitude is confident this playbook will quickly become your go-to guide for leveraging user behavior to understand and improve retention.