And…there comes the splitting headache every marketeer is so familiar with.
Part 1 in the mini-series on user onboarding. Read part 2 here.
In my last business, every VC meeting I have ever had, one of the things that was a real head-turner was the moment I talked about the fact that ~20% of our consumers were ordering from us 4 times or more in any calendar month.
Repeat behaviour/transactions, customer retention, churn rate — there are many ways to look at some of this data, but they all have the same power. The power of serving as strong indicators of a healthy business. So its no surprise that businesses and VCs alike get overwhelmed and discouraged when they see a dipping customer retention graph. The bigger problem is the fact that you don’t seem to put a finger on the lever that could help you plug in this hole that is slowly draining your business dry.
THE BIGGEST MISTAKE WE MAKE
When it comes to consumer retention, we typically start the process a little bit too late, and that is the biggest mistake. We try to retain consumers who have already transacted with us at least once (maybe more), but who have slipped through the cracks in time. What we ignore is the fact that we had already lost a huge percentage of our audience in the transition from
user → paying consumers
Obviously it is a good idea to retain as many of your paying consumers as possible, but what about the users we lost who could have potentially been paying consumers? Why are we taking their loss with a shrug, calling it ‘the cost of doing business’, or just dismissing it with ‘it happens’? Why are we not trying to retain them? Just because they didn’t transact doesn’t mean they won’t, does it?
I copied this image from Clevertap’s website. Of course it is a dummy data just to illustrate what is it that their product does, but the data would have been formulated and populated based on how the real world engagement numbers typically come across as. What you would notice is how by the end of Week 1, the app has already lost the recall for more than 80% of its new users. What that essentially means is that a majority of those users have been lost for good, which in turn keeps on driving up their avg. CAC (customer acquisition cost) — which has already been shot up by a factor of 5x at this stage.
That’s not a pretty scene at all, is it?
THE FORCES AT PLAY
There are multiple factors to consider when you are trying to run a startup. One of the first hard realities is the fact that you would lose out a good chunk of your initial visitors as well as registered users; there is no escaping that. No matter how good your product is, how compelling your landing pages are, and how effective your marketing campaigns were, there will always be people who popped on to the landing page just to check you out. Some of them would even sign up for your services, but you’ll never be able to convert 100% of them to transacting consumers. Why? Because the intent, the value add, the usability — it is just not at the same levels for all of them.
Accept that as a fact, and leave it behind.
The best thing you can do is to improve the percentages at every step of the way. Wherever there is a conversion number at play, improve it by a few points.
WHAT AFFECTS CHURN?
There are a lot of factors that affect churn — what is it that your product is offering, how good the overall UX is, what is the prevailing sentiment about your services amongst your TG. There are a lot of things that can affect the perceived churn rate, but there is one factor that we ignore — how we treat our consumers/users as soon as they sign up. Ergo, the onboarding process.
Today, we will ignore everything else that affects a much desired reduction churn and just look at onboarding and its affect on reducing the churn rate.
Why? Sure, the other metrics and factors are important and crucial as well. But onboarding is often ignored, while the other factors are talked about to death — even though onboarding is practically the first interaction that your user is having with your product, thereby playing quite a pivotal role.
There is a reason it is said that first impression is the last impression. Many consumers will judge you by on whether or not you put your best foot forward during the first impression. Well, maybe not the best foot forward, but whether or not you gave them a reason to come back to you again. And that is why onboarding is important.
RETENTION. THE INTRICACIES
User retention is not a simple task, it is rather an ongoing on. It doesn’t matter which business segment your startup falls in to, your retention matrix should be able to divide your consumer — retention strategy phases into three simple buckets:
- Phase 1 — Targeting short-term retention
- Phase 2 — Establishing basic usage pattern
- Phase 3 — Build a base that loves and lives by your product
In different phases, you are eyeing different objectives. In phase 1, your prime objective is to have your users use your product
at least once more after they signed up (and then, maybe a couple of more times). In phase 2, you want a few more usages so that you can establish and identify some sort of a usage pattern helping you identify different anchor points. (Identifying various anchor points is crucial for you in this phase because this will help you segregate your userbase in few distinct buckets based on 1 or 2 macro parameters)
By phase 3, you would have identified users who are most likely to be present even after a couple of months, and what is it that is working for them. This is the bucket of users that will help you improve your strategies in phase 1 and phase 2, and ultimately this is the only bucket that matters. This is the bucket that you aim to expand as much as possible.
SO HOW DOES ONBOARDING REDUCE CHURN?
Look at the three phases of retention we talked about. It is no secret that phase 3 is where you want your users to land at, but we lose users during each transition — the percentage lost in transitioning from phase 1 to phase 2 being the highest. Do a good job at onboarding your new users, you have a much higher volume in phase 2, more data to look at, understand, more ways to optimise usage → better chances of reducing percentage loss in transition from phase 2 to phase 3.
Just look at the retention curve for Android apps, and you would find that the Clevertap data we looked at earlier was not inaccurate.
The green curve (next 5000 apps) — where you probably would be — lose 80% of their new users in the first week itself. After day 30, the graph begins to flatten out. This gives us a good first 30 days to look at and make changes to to make sure the graph starts looking bit better.
YOU ALWAYS LOSE NEW USERS. EVERYONE DOES
That is how marketers everywhere justify the loss of new (and often acquired) users. But that is not entirely accurate.
Don’t believe me. Look at a comparative graph on retention.
While an average social app is losing out on 65% — 70% of its new users in the first two weeks, Facebook loses just over 20%. And they do so by excellent user onboarding. It is quite apparent from the graph, isn’t it? In the first three — four days, while an average app is losing out on more than half of its audience, Facebook is able to hold on to more than 80% of them.
Well begun is half done.
Sure, you may not be able to emulate the success story of facebook; they have dedicated years worth of manhours to this task and this task alone. But you can make a start in the right direction. Every 5% improvement you are able to bring about in the first couple of weeks would translate to a substantial improvement in the later stages when the graph starts flattening out.
We continue this discussion on user onboarding and its effect in reducing churn tomorrow as well. We would look at specific actions, why they make sense, and the potential impact they can have on your churn.
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That’s it for today; see you tomorrow.
I am Abhishek. I am here... there.... Everywhere...