Part of course:
What is Retention and how do you measure it?
- How to measure retention
- Account expansion and reactivations
- Magical moments
- Why is retention so important?
The truest indicator of whether your product is providing real value to the users is retention. Very simply, it's a metric that tells whether your users are coming back to your product regularly or not.
Here are four steps that you should follow:
A set of users with a same property is called a cohort. So all the users who sign up in a particular week (or year, if yearly retention makes sense for you) is called that week's (or year's) cohort. So for Airbnb, since they have been in business for a few years, if they were to plot out their retention curve, it will look something like this:
Note that each of these like represent a set (or cohort) of users that signed up in a given year. Here's the most important thing: after a few periods (let's call it the Long Term Period), your retention curve must stabilize (or even go up, like Airbnb's Yr 1 curve goes up after 3 year mark) close to the average long-term retention targets for your business vertical. Here are a few verticals, and their typical Long Term Targets for retention:
This is the gist of measuring retention for startups. Once you have this nailed down, you can start looking into building out your growth team and scaling your product.
In addition to your retention curve flatlining, it's a very good sign if you see account expansion — that is, your existing users spend more time/money (or whatever your goal is) in your product. In addition, it's also great if users get re-activated — that is, users who used your product in the past and didn't use it for a while come back and start using it again. There are three main ways this can happen:
This topic is a little fuzzy, but we the broad gist is that as a product person, it's important to remember the power of magic moments. These are the moments that serve as peaks in your user's experience, and are usually correlated with real value being provided by your product to them. These are also the moments that make them prod their friends and tell them about your product, and why you're cool. Thinking of your user's product journey in terms of magical moments, and intentionally creating them is a good thing to keep in mind.
Retention is a truer indicator of if you're doing something right than any other metric. If you look at just an aggregate metric like total minutes spent, or total monthly revenue, it's not a true indicator of the health of the business.
Why? Because of the Forest fire theory of startups. Imagine a forest fire starts in the middle of the forest, and it spreads outward. At any point of time you look, you'll see more trees burning as the fire spreads outward, and you'd be happy to see all the aggregate metrics charts up and to the right.
In the illustration above, green are the people who haven't tried out your product yet (the forest), maroon are the people who are trying out your product at any given moment (the fire), and black is for people who tried your product but decided not to use again (burnt forest)
Over time though, since your retention is ~0, we know that the fire will consume the entire forest and eventually die. This is what happens with a lot of products that are not able to get to a stable line of retention — some of them may even seem to be highly successful while the fire is spreading (since the red area is increasing over time). A core reason why this happens is that the product inherently doesn't provide real value to anyone.
This was a brief overview of retention, and how to measure it. A lot of tools like Heap Analytics give you great, out-of-the-box tools for plotting these retention charts — it's very easy to get started and this is the first and the most important metric you should measure.