Mastering Customer Retention Strategy
You've invested time and money into acquiring new users—but are you keeping them? With a deliberate focus on customer retention, you can improve retention at all stages of the user lifecycle to reduce churn and boost lifetime value.
Your critical event and product usage interval
To improve your retention, you first need a solid grasp of how people use your product. This will also help you choose the right time frames for your metrics; for example, whether you should look at daily, monthly, or weekly retention.
What you'll learn in this chapter
In Chapter 3, we’ll walk you through the Retention Lifecycle Framework, our in-depth approach to improving retention based on how users interact with your product. To fully leverage the Retention Lifecycle Framework, it will first be helpful to understand two concepts related to your product's usage: your critical event and usage interval.
Before diving into this chapter, take a moment to set yourself up for success.
Review instrumentation: Ensure your analytics are firing correctly and that you're tracking the user actions that are important to you. Review your analytical instrumentation, organize the events you're tracking, and validate your data before moving into the product usage sections of this chapter. Read more about how to conduct an instrumentation review in the Appendix.
Measure baseline metrics: Ensure you understand your user profiles and behaviors before implementing the Retention Lifecycle Framework. Capture your baseline standard product usage metrics and record them in the “Baseline Product Diagnostic” worksheet. You can periodically track these metrics to assess the impact of your retention strategies.
See the Product Analysis Toolkit for recommended metrics and methods.
Understanding critical events
Your product's critical event and usage interval will inform how you execute further analyses using the Retention Lifecycle Framework, which we’ll cover in Chapter 3, so it's essential to first think through how they apply to you.
What is a critical event?
A critical event is an action users take within your product that aligns closely with your core value proposition. It's the action you want to drive your users to perform—and chances are you already know your critical event. When measuring retention, the critical event describes the action you want users to perform to qualify as active or retained.
How many critical events can you have?
A good rule of thumb is to have one critical event per core product offering. For most companies, this means just one.
However, in some cases, it may be appropriate to have multiple critical events. For example, two-sided marketplaces with different product flows—like buying and selling. These products' users tend to fall into either one group or the other, so it makes sense to have two critical events and analyze these users separately. Uber, for example, has two user bases, drivers and riders; Airbnb has hosts and guests; Etsy has buyers and sellers.
When determining your critical event, consider the following:
- What is the one action that you want a user to do every time they use your product?
- What metrics do you care about as a company? What number are you ultimately trying to increase? Which user actions can you tie to that metric?
- Do you have different product offerings? What are your success metrics for each?
Real-life example: Airbnb's critical event
If you were calculating Airbnb's retention, would you want to count a user as retained if they only open the app and browse listings? Simply opening the app doesn't provide business value to Airbnb or align with its objective of generating revenue. Airbnb's critical event is making a booking. The company's growth and success depend on hosts listing accommodations on Airbnb and users booking them.
Here are more examples of critical events from our customers. Note that for each, the critical event closely aligns with the core value the business provides its users.
Determining your product's usage interval
Product usage interval
The frequency with which you expect people to use your product (daily, weekly, monthly, etc.)
You can only draw conclusions from your retention numbers after first understanding your product's usage interval.
Some products are for daily use: social networking, media, casual gaming, or productivity apps. Others are used less frequently, like on-demand, ecommerce, and expense reporting apps.
Why does the product usage interval matter for retention?
Say you have an on-demand restaurant delivery app. Your product intuition tells you that most users place an order about once a week. If you look at the proportion of users who come back daily, you might see something like the following graph.
It shows a massive drop-off of users after Day 0 and then a drastically lower proportion returning on any subsequent day.
But that retention curve isn’t a good indication of the health of your product. Day N retention would only give you the percentage of users active on one arbitrary day. These numbers will be small because most of your users won't place an order every single day.
Instead, you should be looking at your retention on a week-by-week basis. That is, the percentage of your users returning any time during Day 1-7, Day 8-14, Day 15-21, etc.
Compared to daily retention, weekly retention would better indicate your product’s health because it aligns with the natural frequency users return to the app.
To accurately calculate user retention across all stages of the Retention Lifecycle, you must first determine how often you expect users to return to your product. Not doing so can lead you to avoid misinterpretation of your retention and misinform your improvement strategy.
The usage interval framework
So, how do you determine your app's usage interval? The following four-step framework utilizes your existing user behavior data to help you accurately determine your product's usage interval.
1. Identify all users who repeated the critical event at least twice within a specific period. We suggest 60 days.
Note: You’ll want to use a period longer than your usage interval; for most products, 60-90 days is sufficient since usage intervals rarely go beyond one month, and we expect users to perform the critical event at least twice within 60 days.
2. Analyze how long users in Step 1 took to return and perform the critical event the second time.
3. Plot the percentage of users who repeated the critical event over different intervals to give you a cumulative distribution function.
4. Identify the time interval at which 80% of users have repeated the critical event—this is your product usage interval.
PRO TIP
With the exception of seasonal products and services, like tax prep software, most businesses don’t have longer than monthly usage intervals. If you’re the exception, adapt this framework to your needs.
The steps we outlined will help you calculate your usage interval no matter what analytics platform you’re using. Just follow the step-by-step instructions in the “Determine Your Product Usage Interval” worksheet.
Determining your product usage interval is critical in getting an accurate baseline of your current user base and is foundational to analyzing user retention. Your product's usage interval should inform your retention analysis and strategy.
This framework is great for determining your product usage in an organized, quantitative way. But it’s also important to couple it with your own product intuition and solid user research. Qualitative user feedback can be just as valuable as quantitative findings.
If you’re using Amplitude, you can use the Usage Interval view in the Retention Analysis chart to find your product’s usage interval quickly. Check out Amplitude Academy for a detailed 30-min tutorial.
Take action
Before we cover in-depth analyses in the rest of the playbook, make sure to work through the necessary pre-work worksheets and groundwork:
- Check your analytics instrumentation
- Organize your event taxonomy
- Determine your critical event(s)
- Complete the worksheet “Baseline Product Diagnostic” to get a baseline of your standard product usage metrics. This will help you measure improvement going forward.
- Complete the worksheet “Determining Your Product Usage Interval” to find your product usage interval. We’ll refer to your usage interval throughout the rest of the playbook, so completion is strongly encouraged.