Innovation February 21, 2019

Don’t fill a leaky bucket. Think retention first.

Maarten Van den Bossche

Growth Strategist

You’ve built a product and released it to your target market. Finally. Your marketing department has unleashed all app marketing tactics out there and acquires a few thousand new users. Product success! But is it really?

Unless you’ve just launched a paid app, app installs won’t necessarily translate into business. In 2017, around 197 billion apps were downloaded. That’s a staggering number of downloads. Yet, only 21% of those downloaded apps get used more than once.

This means only 200 out of every 1.000 of your app installs reported will have a second session within your app. And that is only if your app is at least average on retention. If you’re not watching your retention rates, you might as well be burning your acquisition budget, or even worse: your users.

What is user retention?

User retention measures whether users are returning to your product. If a user has used your app yesterday for the first time and uses it again today, he’s considered to be retained for Day 1.

Imagine you acquire 1.000 users per week on average. ‘Week 1 Retention’ is the percentage of these users that performs a certain action in the week following their first action. So if you have a W1-Retention of 40%, it means that 400 out of those 1.000 new users have been active in the second week.

This is what a retention curve could look like:

New User Retention

New User Retention

For New User Retention, the W0 will always be 100%, because all new users have been active in the week of their acquisition. Then the curve will drop as you’ll probably have lost some users that don’t come back in the second week.

If you see this kind of retention curve, you should worry. First of all, it drops very deep after the first week. This means that 87% of users have already abandoned the app by the second week. By the third week, almost 90% of the newly acquired users did not come back. Acquisition should not be your main focus in this case.

The second problem is that the curve does not flatten out. If you have real product-market fit, your users will still be around after a few weeks on a steady basis. Depending of course on the natural usage frequency of your app.

Retention or Acquisition?

To know whether to focus on retention or acquisition, we use a technique called growth modelling. In this growth model we tear down the current product growth into all of its underlying factors. Using the model we can track our current growth and make simulations of our active users based on the metrics we think we can improve.

Given the example above, we run some simulations:

  • We acquire 1.000 new users per week, but 3th month retention is only 3%.
  • We acquire 1.000 new users per week, and 3th month retention is 20%.
  • We acquire 1.500 new users per week, but 3th month retention is only 3%.

What we see is that even over this short period of 3 months, the case with higher retention shows a way steeper growth curve than do the lower retention cases. We end up with a bigger growth in weekly active users if we can lift up the retention rate to 20% rather than if we increase the amount of weekly acquired users to 1.500.

What causes bad retention?

There’s a few things that can cause your retention rate to be low. You should take the time to find out which one of them is the case.

  • No Product-Market Fit: You might have thought you’ve reached product-market fit while you didn’t. Either you’re building the wrong product or targeting the wrong audience. Let’s hope it’s not both…
  • Bad Onboarding Flow: Even though you’ve build the perfect product, users will need some time to discover what it does exactly. If they don’t experience the core value as soon as possible, they might be lost forever.
  • Lack of Communication: All habits need time to be built. Especially on the first few uses, people might need some reminders to return to the app.

Combining these data analysis with some experiments should get you on track to increase your retention rates. This in turn will give you more return on your acquisition efforts and more sustainable product growth.

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