Acquiring a new customer can cost five times more than retaining an existing customer. Let that sink in.
For most companies user retention has been an afterthought - not anymore.
Expectations have changed. The growth-at-any-cost paradigm that fuelled the last 10 years of expansion has finally come to an end. It’s no longer acceptable to spend $ on acquiring users if the LTV:CAC < 1. Retention is the new unicorn KPI.
“Increasing customer retention rates by just 5% can increase profits by between 25% and 95%” (Bain and Company)
But if it’s so important to retain your existing users, why do companies ignore it? Well to start with, most companies don’t understand retention as a metric. Of all the metrics, it’s the least understood.
So what is retention? Simply put, retention measures the ability of your product to keep users engaged over time. For a business like Uber, engagement is measured by platform transactions. For Instagram it’s daily in-app activity, for Netflix it’s active subscribers. It’s that simple!
Since we are talking about the Uber story, let’s dive into how we did this at Uber!
First, we spent a lot of time on reducing the “time to value”.
If you are a low ticket consumer business and it takes more than 7 clicks for a user to complete the first transaction on your platform - you have already lost 70% of customers. We’ve seen businesses try to show every single feature right after users land on the product. It doesn’t work and users will buy nothing. You have to reduce the cognitive load by showing the most relevant feature and focusing on reducing time to value. For first-time users, your only objective should be to make sure that the users complete a transaction on your platform. Even it’s $1. Why? Because it drives intent and trust in your customers to explore more.
Second, maximize feature- and product-adoption
After you have done a good job at activating the users, you have to hammer home the most important features and ensure users see the most relevant content. At Uber we noticed that people who used multiple products had xx% higher retention than users who used only one product (that’s a double digit lift!). How did we do this? By orchestrating the “next best action” using a predictive event-driven engine. Imagine you could only send one push notification to your user per month. Just one. What do you do? You identify the user activity in your app and infer the next best feature to upsell. And then you use the CMC framework to upsell the user:
🧔🏻♂️ C = Cohort: identify dynamic cohorts that will yield the highest ROI
⭐️ M = Moment: leverage the in-app activity to identify the right moments
💬 C = Channel: no one likes spams across multiple channels, use personalized channels that drive the highest CTR
“Strike while the iron is hot” - introduce your top features and product to the right cohorts, at opportune moments through the right channels.
Finally, most important of all - identify the silent sufferers
Humans have one thing in common - everyone hates friction.
Recent app-user feedback we read says: “If I am stuck somewhere in the app, it becomes my problem, even if it isn’t. Then I have to spend 10 minutes to raise a support issue. When I finally do, the agent replies back asking me to describe the issue in more detail. C’mon, I had a failure in your app, look at the logs, figure it out - it’s your problem, not mine”.
When people face issues they take the easy way out. They suffer silently for a while and then they simply churn - because who likes a back and forth with the support agent?
Remember: people who reach out to your support are actually gold - they love your product, that’s why they took the time and decided to reach out, they likely won’t leave.
Put double the focus on the users who NEVER reach out, they are the “silent sufferers”. They are the ones who don’t care. Because they have an alternative. If you want to stop people going to your competitors, you need to understand their in-app behaviour and offer them a solution before they leave. At Uber we became really good at using in-app activity to identify silent sufferers at risk of churn, and proactively solving their problems.
So what’s ahead?
It’s time to empower your organization to keep the users it has fought so hard to acquire.
The best companies are already on top of this. They use customer storytelling backed by cold-hard facts, enabled by superior platforms that make customer pain-points crystal clear. Even when the customer is silently churning.
This is our mission here at Fini (YC S22)