Retention: The Ultimate Key Performance Indicator for Digital Products
By: Guy Pistone
In the realm of digital products, entrepreneurs and businesses rely on Key Performance Indicators (KPIs) to make informed decisions. Being data-driven means identifying and monitoring the KPIs that are most relevant to your business, constantly evaluating them, and using the insights to shape your strategies. These KPIs can encompass various aspects like conversion rates, subscriber counts, revenue per employee, and more. Nevertheless, I’m here to emphasize that, for most digital products, the KPI that should consistently top your list is…… retention.
With over a dozen years of experience in developing mobile and web applications for both consumer and B2B markets, I’ve launched well over a hundred different digital products. Through this journey, I’ve come to understand that retention often serves as the linchpin for the success or failure of a company. You simply can’t aim for scalability or secure funding beyond the seed stage without solid retention figures.
Imagine a subscription-based application charging $10 per month. If 100 people subscribe in the first month but the retention rate drops to 50% month-to-month, it means that most of the initial 100 customers will have churned by the fifth month. Consequently, the customer’s Lifetime Value (LTV) hovers around $50, indicating that, on average, a subscriber brings $50 worth of value during their time with your service.
To enhance this lifetime value, you must encourage users to make additional purchases within that 5-month window or extend their subscription period. This fundamentally involves retaining users for longer. So, how can you achieve this? Typically, the answer lies in product improvement — adding features that make users more engaged with the application, thus reducing attrition.
However, the challenge of improving retention goes beyond initial implementation. After you launch these features to bolster retention, you’ll need to wait for at least five months (assuming your average retention is five months) to evaluate their effectiveness. Compare this with a metric like Conversion to Paid, which can be implemented and evaluated within a few days.
Increasing Conversion to Paid is often simpler, involving changes such as reducing payment cost, minimizing payment friction, educating the user, adding walkthrough of core features, or streamlining the payment process. On the other hand, retention necessitates more significant updates and changes, demanding careful planning, strategic thinking, and potentially weeks or months of technical alterations.
Consider the example of a one-way communication content application, like video-based training. Such content may become monotonous after users consume it all, leading them to leave the application. To improve retention in this scenario, you can introduce features that provide feedback or data related to their training, such as adding a calorie tracker or nutrition journal to a video nutrition application.
Too often, business owners throw in the towel because they can’t achieve profitable unit economics, a metric that functions off of retention. Unit economics boil down to a simple equation: Total Lifetime Value of a Customer — Average Cost to Acquire a customer = Net Profit per Customer
If the net profit figure is in the red, it’s often due to insufficient lifetime value or high customer acquisition costs. While customer acquisition costs can be influenced by external factors beyond your control, retention, a key component of LTV, can be managed through product updates and a thoughtful strategy.
When seeking funding, many entrepreneurs believe they must amass millions of users to secure seed funding. In reality, the astute venture capitalists understand that they can invest in customer acquisition to scale a business, rendering user numbers somewhat irrelevant at that stage.
What genuinely matters to VCs is retention because it signals that the entrepreneur has created something people truly use and that can be scaled effectively. It’s more convincing to investors if you can demonstrate a high retention rate with a smaller user base rather than amassing a large but unengaged audience.
In essence, if you prioritize one thing when building your product, let it be user retention. Success in other areas will naturally follow. Retention is, indeed, the ultimate Key Performance Indicator for digital products.
Work with Valere
The journey of creating and nurturing a digital product is akin to cultivating a garden. It requires patience, dedication, and a keen eye for the health of your ecosystem. Retention is not just a metric; it’s a testament to the value your product brings to its users over time. It’s the pulse that keeps the product alive and thriving.
At Valere, we understand the intricacies of user retention. We don’t just build digital products; we engineer environments where users feel valued, engaged, and understood. Our approach is holistic, focusing on the user experience from the first interaction to the hundredth, ensuring that every touchpoint is an opportunity to solidify the user’s relationship with the product.
We believe that a product that retains is a product that resonates. It’s a sign that you’re not just meeting expectations but exceeding them. It’s evidence of a product that’s become a part of your users’ daily lives, a tool they rely on, a platform they trust, and an experience they enjoy returning to.
As you embark on the path of digital perfection, remember that retention is more than a number — it’s a narrative of your product’s impact on its users. Let Valere help you craft that narrative, create that impact, and turn users into lifelong advocates for your product.
Together, we can build not just a product, but a legacy of enduring value. Reach out to us at contact@valere.io, and let’s make retention your reality.
P.S. As promised, here are a list of features that can help achieve your goal retention KPI:
1. Personalization: Customized content and recommendations based on user preferences and behavior can keep users engaged.
2. Gamification: Implementing game-like elements, such as achievements, badges, or points, can make the user experience more enjoyable and encourage users to return.
3. Push Notifications: Sending relevant and timely push notifications can remind users to return to the app or provide updates on new content or features.
4. In-App Messaging: Facilitate communication and engagement within the app, enabling users to interact with each other or receive support from customer service.
5. Loyalty Programs: Rewarding loyal users with special privileges, discounts, or exclusive content can motivate them to stay active.
6. Progress Tracking: Providing users with a clear way to track their progress, such as completion percentages or goals achieved, can encourage continued use.
7. Offline Access: Allowing users to access content or features offline ensures they can use the app even when an internet connection is unavailable.
8. Community Building: Create a community or forum within the app where users can connect, share experiences, and collaborate on tasks or projects.
9. User-generated Content: Encourage users to create and share their content, fostering a sense of ownership and engagement.
10. Interactive Features: Incorporate interactive elements like quizzes, polls, or surveys to engage users and gather feedback.
11. Continuous Updates: Regularly add new features, content, or improvements to keep the product fresh and exciting.
12. Onboarding Tutorials: Offer interactive onboarding tutorials for new users to help them understand and use the app effectively.
13. Data Insights: Provide users with data and insights related to their usage, progress, or achievements, helping them see the value in continued engagement.
14. Social Sharing: Enable users to share their accomplishments or experiences within the app on social media, which can lead to increased user acquisition and retention.
15. A/B Testing: Continuously optimize the user experience by running A/B tests to understand what features or content resonate best with your audience.
16. Feedback Mechanisms: Allow users to provide feedback, and actively respond to their suggestions and concerns, making them feel heard and valued.
17. Cross-Platform Sync: Ensure a seamless experience by allowing users to access the product across various devices, maintaining continuity.
18. Premium and Freemium Models: Offer a combination of free and premium features to cater to a wider audience while incentivizing upgrades for more value.
Remember that the effectiveness of these features may vary depending on your specific product and target audience. It’s essential to continually analyze user data and feedback to refine your retention strategies and make data-driven improvements.
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Valere is an award-winning digital transformation, innovation, and software development company. As an expert-vetted, top 1% agency on Upwork, Valere has re-invented the way software design and development agencies operate — mitigating issues related to communication and process inefficiencies while partnering with clients to architect the right solution for the right problem.
Valere utilizes emerging technology in machine learning (ML) and artificial intelligence (AI) to enable startups and enterprise businesses alike to execute, launch, and scale their vision, transform organizations, and build something meaningful.
Valere has built over 300 successfully launched applications –ranging from startups to Fortune 500 companies! Valere has experience developing for both consumer and B2B audiences across a myriad of verticals such as healthcare, finance, sports, fitness, education, and more!
Valere has a successful track record of building applications that have yielded millions in revenue, downloads, and Venture Capital — while also getting apps featured by the New York Times, Apple App Store top featured apps, TechRadar and Google Play Store top featured apps!The Valere team consists of expert engineers, project managers, designers, and quality assurance specialists, with offices in the United States, India, Croatia, Peru, and Uruguay.
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