Retention is a comprehensive area of the company’s work in terms of:
- Maintaining the activity of the client base;
- Accelerating the movement of customers from the segment of new to the segment of active customers;
- Increasing the life cycle of customers, i.e. Customer Lifetime;
- Building up profits per retained customer for the entire period of their interaction with the site/product, i.e. increasing Lifetime Value;
- Regularly bringing the active portion of customers back to the site or product;
- Retaining customers with declining activity and purchase frequency;
- Minimizing the Churn Rate.
How to Calculate Retention?
To calculate customer retention we need to use 3 main indicators — the number of clients at the end of the period, the number of clients who came for the whole period, and the number of clients at the beginning of the period.
The academic formula is simple:
CRR (customer retention rate) = ((No. of clients at the end of the period — No. of clients who came for the whole period) / No. of clients at the beginning of the period) * 100%
What period is RR counted for?
The classic periods of RR calculation are RR of the 1st day, RR of the 7th day, and RR of the 30th day. However, you need to understand the specifics of user scenarios that your product solves, and it doesn’t matter whether it’s an app or a website.
For example, for social media, user engagement and time spent in the app can be the target metrics. Since social networks make money from advertising, they need to have the user log in every day, spend as much time as possible on the social network, and view as much content as possible. Therefore, the social network will count RR on the 1st day, the 2nd, the 3rd day, etc.
There are less frequent scenarios of product usage, for example, SaaS — where, sometimes, the number of clients can be counted on the fingers of two hands, and the cycle of use can be a year or more — whether to analyze RR — absolutely.
The classic model of 1, 7, 30 days, or 1 year. This model is good for understanding the survivability of traffic: to quickly assess the launch of a particular marketing activity, content update, evaluation of a new feature or design update, etc. — In general, it’s always nice to have these numbers in front of you.
To fine-tune timeframes that will correspond to user scenarios of your product/business the most effective is RFM analysis (recency, frequency, monetary) — the analysis method that allows you to highlight the segment of users who are with you the longest, come in the most and bring the most revenue — such a segment can be taken as a benchmark to analyze in detail: to highlight their user scenarios, frequency of product usage, transaction cycle, and other important criteria.
Let’s say you have a sports app with online workouts with monthly, six-month, and yearly subscriptions. You’ve done an RFM analysis and found that the most fertile segment uses two scenarios. Scenario 1: Users log in 3-4 times a week, watch gym exercises, and have a plan with a one-year subscription. Scenario 2: They come in 2 times a week, use the workout at home, and subscribe to a monthly plan. This way you understand how often, how, and which customers should use your product to become your best customers.
By user segments
Combine the portrait of your target audience: gender, age, geography, income, behavior, and other characteristics. It’s important to understand the return on these target segments:
By traffic channels
RR is part of the traffic quality analysis. It is important to understand which channel gives what result, and based on that evaluate the channel itself and tweak targeting, advertising message, landing page, etc. Analyze the traffic for product scenarios and the use of various features and then watch the return rate. Separately, I would highlight inactive/leaving users that you decide to wake up and bring back to the product.
A traffic sources report of analytical system Finteza
By inactive users
This dashboard is useful to set up before marketing activities and implementation of new functionality designed to bring users back to the product: for example, launching email or trade marketing campaigns with discounts, etc.
By product usage scenarios
Every product manager and product marketer should clearly understand what scenarios of product use are expected, what they are for users, and understand the a-ha moment for their product — the moment when the user has realized the value of the product for himself and started to use it.
When you build these scenarios and display them on the dashboard, you can track which ones work and which lead to churn. All in all, there are a lot of structuring options you can come up with. Don’t let that scare you, start with the most basic ones. Build different dashboards.
Example of advanced ecommerce retention report of Finteza
There are several ways to build benchmarks:
- By your metrics.
- By competitors’ metrics.
- According to the indicators of individual industries, the reports are usually prepared By analytical and consulting agencies.
When analyzing return rates, we always have a different indicator to check – the churn rate. You will get the full picture. Here are some trends from the report: for media products and the financial sector, a Week 8 CRR of over 25% is considered the norm. For SaaS and e-commerce, the figure is 35%.
User retention strategies
Globally, retention strategies can be divided into two large tasks — product and user reactivation tasks with the help of marketing tools.
Strategy for optimizing product usage scenarios:
- Define target audience;
- Define an a-ha moment for each audience.
A strategy for learning how to use your product
In addition to product strategies, you need to develop a set of measures to reactivate users through marketing channels.
Here are some of them:
- E-mail and Push marketing.
- Remarketing — set up personalized ads for products/categories that interest the user.
- Promotions and discounts.
- SMM — use interesting and non-trivial content to reactivate through social media channels.
Returning users and engaging them is one of the main goals of a product marketer and product manager. There are no tricks or hidden techniques for retention. The rule for RR is the same — know your user and make a product that benefits and satisfies them.