Every one of us who works in software, UX design, and product leadership faces the same core question:
What is the best way to retain customers and users?
How do we keep users engaged with our software products? How do we nurture a positive long-term relationship with our customers?
When we successfully retain users everybody wins. We earn bigger budgets for our teams, the company delivers stronger business results, and users are happier. They choose us as the tool they want to use - and the brand they trust - to deliver meaningful experiences in their life and work.
But we also struggle with the same core problem - most software fails to retain users.
In a three-part series of blog posts, we’ll break down the problem of user retention and give you guidance on how to start installing solutions that work. Part 1: Why User Retention (and Abandonment) Matters Part 2: Why User Abandonment Happens Part 3: How to Improve User Retention and Reduce User Churn
We’ll cover user retention at a variety of levels, including high-level concepts and strategies to always keep in mind, nuanced and specific tactics that we’ve seen work for our clients, and lessons that can be learned from beyond the world of SaaS and software products.
Join us for a ride on the user retention rollercoaster!
Why User Retention (and Abandonment) Matters
If there’s one stat that neatly sums up the challenge we all face in user retention, it’s got to be this one:
The average software application loses around 77% of daily active users within the first three days.
In other words, more than three-quarters of your users will be gone within the first several days of trying your app. That means you have one of two options: Option 1: Attract a ton of new users every three days. Option 2: Make a great impression and start building trust from Day 1.
We probably don’t have to tell you that Option 2 is much more cost-effective and delivers stronger ROI over the long haul than Option 1.
Here’s what’s at stake in user retention and why trust and confidence are your best weapons against user abandonment.
The One-Week Rule
For most software products, it makes sense to measure user retention based on weekly rates. How many users over a one-week period come back to use your product or service?
This might change based on the type of product or service you’re offering. Some apps are meant to be used daily, some specialized apps are used less frequently, but most need a weekly cycle of returning users to survive.
This means, when thinking about new users who are trying your product for the first time, you have about a week (max) to win them over by delivering value that will turn them into long-term loyal customers, or they’ll go somewhere else to find that value.
If you happen to have a product or service that is so specialized it’s cornered the market for a specific need, you might be retaining users because you’re the only game in town. But you can’t get too comfortable because that’s not likely to last forever.
There might be barriers today that keep users from abandoning your product. But, all things being equal, they’ll disappear quickly the first time a better option comes along if you’re not delivering real value to them.
Over the last two decades, we’ve seen that it’s getting easier and easier for users to migrate to a better experience. That’s only going to increase in speed, which means we need to be prepared to deliver great product experiences for users from the start.
The Pains of User Abandonment
The dark side of user retention is user abandonment. If you don’t deliver value and meaning to users in the first few experiences, you’re going to see your abandonment rates skyrocket.
User abandonment rates carry serious consequences. Here are just a few of them.
User Abandonment Increases Customer Acquisition Costs (CAC)
You need a certain number of active users to make money for the business and keep your market share. High user abandonment rates put an unfair strain on marketing to pull in more potential customers.
When you as a product leader aren’t able to pay off your marketing efforts with a delightful and meaningful user experience, you’re essentially burning money on customer acquisition costs (CAC).
CAC is usually calculated by dividing your sales and marketing costs by the number of customers acquired. For a more accurate measurement in the world of software products, we believe it’s important to think not just of the customers you’ve acquired, but of the customers you’ve retained.
Abandonment is a hole at the bottom of your bucket, leaking users and customers while marketing spends more money to keep the bucket full.
User Abandonment Decreases Customer Lifetime Value (CLV)
Rising customer acquisition costs also eat away at your customer lifetime value (CLV). But you’re not only losing the lifetime value of your customer. You’re also losing the lifetime value of your product and brand.
For every user who leaves, you lose potential revenue growth. This is especially true now that the bottom line for many products is driven by in-app purchases and other add-on services.
When a user abandons your product, you’ve lost not only the cost to get them into your product in the first place, but the potential added value of everything they might have bought if they stayed with you longer.
We see the impact of this in healthcare. Patient confidence is an important element of user and customer retention in healthcare, but it’s also about access to added services and bundled benefits. When people can get more personalized services, they’re more likely to stay with their healthcare provider longer. That can add tremendous value for both the customer and the business.
Of course, B2B or SaaS products are also increasingly bundling their products and services. You might acquire a customer for one service and develop more services and products for them over time. If you gain their confidence, you can start to show them the other ways that you can deliver more value with new offerings.
User Abandonment Eats Away at Your Budget
We’ve had a lot of clients come to us after realizing just how much they’ve wasted in resources and lost revenue trying to fill the hole of high user abandonment rates.
It’s not just the marketing dollars lost to refilling the pipeline. It’s also the time and internal resources they’re investing in building the wrong solutions to the problem.
We’ve worked with clients who tried to throw development resources at quick fixes and gimmicks designed to plug the holes and pull users back into their product. They lost focus on what really matters - solving core problems for their users.
Often, the answer is not to throw more developers or features at a problem. It’s to tighten up and shorten the experience to focus on the things that really matter to users. If you build a better experience, you’ll retain and grow a higher percentage of new users. But you have to know how to allocate your resources effectively to do that.
When people work with a great product or service and love it, they refer it to a friend or colleague. That creates its own growth engine through a higher reputation and quality of the product itself. Product-led growth is going to be more financially viable in the long run than short-term fixes to slow your abandonment rate.
User Abandonment Undercuts Brand Reputation
User abandonment is not just a measure of your ability to deliver value to users over the short term. Your long-term reputation is ultimately at stake.
As more people are exposed to something with your name on it that doesn’t work, they lose confidence that you can deliver anything they need and you lose ground on your brand reputation.
It all goes back to the original stat at the beginning of this post. People don’t return to products they don’t need. To build trust, you need to deliver great experiences that give users reasons to come back.
It also works the other way around. If you build a lot of trust and create meaningful experiences, you get a lot of leeway and space for making mistakes. Nobody is perfect. You will trip up and create something that doesn’t meet expectations. As long as you’ve built up trust you’ll have a chance to recover and get back to delivering value.
The Path Out of Abandonment
If you’re not focused on how you can retain users, you’re not paying attention to one of the most important drivers of revenue growth and business success. The key to lowering user abandonment and raising user retention is investing in solutions that address core problems for your users and customers.
You can’t just throw more development resources at the problem. You need a trusted advisor who has counseled hundreds of clients over more than 20 years. In our next post, we’ll talk about the core factors behind user abandonment and what causes users to leave your product and never come back.
In the meantime, if you want to discuss how to address your own user abandonment issues, get in touch and let’s start a conversation.