Why retention is the ultimate growth hack
How to fix your leaky bucket and drive growth with 'moments that matter’
By Nikolas Vogt
Founder, Growth Academy | Ex-Growth Marketing Lead, Google | Guest speaker, Santa Clara University
First of all, we don’t believe in so-called 'Growth Hacking' and 'Quick Fixes' at Growth Academy. Quite the opposite, our experiences show that solving growth challenges successfully requires strategic and systematic growth approaches which you can learn in our remote growth courses.
One of the most important but often underestimated growth topics is customer retention. Retention problems can be compared to a ‘leaky bucket’ where the usual top line acquisition efforts begin to fill your bucket with customers but you are also slowly losing customers through hidden drop offs in your customer lifecycle. In the short run, you might not be as concerned about it since your water level is still rising.
But in the medium-to-long run, you’re going to need more and more water to maintain customer growth. Robust growth is all about fixing these holes in your customer lifecycle.
Growth models and our so-called 'moments that matter’ are powerful growth strategy approaches to fixing these holes and improving retention. We’ll start with the importance of retention in general before going into growth modeling 'moments that matter'.
Let’s talk about the meal-kit startup Blue Apron (before the Covid pandemic as exogenous shock caused a fundamental behavior change and ‘artificial’ demand surge for meal-kits). In 2016, Blue Apron was one of the hottest startups.1 They burned through almost $500 million in four years, and then almost burned out. In the 2 years after its IPO and proposed valuation of $3 billion, Blue Apron had to lay off hundreds of employees and conduct a reverse stock split in order to lift its share price above $1. So how could this happen?
Blue Apron was laser-focused on demonstrating top-line sales and user growth determined the company’s value. What they didn't focus on was customer retention.
Blue Apron focused on acquisition over retention, but they didn’t see that the customers they acquired through their high-cost channels weren’t retaining. According to Prof. McCarthy at Emory University, 72% of Blue Apron users canceled their subscriptions within the first six months.2 Their retention curve probably looked more like this blue line going to the lower right, which basically means you aren’t retaining customers in the long run.
It would be overly simplistic to claim that they failed purely because they didn’t invest enough in customer retention, but it for sure was a big driver toward their demise.
If you want to learn how to diagnose retention more in-depth, join Growth Academy and learn growth strategies to acquire and retain customers from leaders at Google, Amazon, TikTok, Spotify, Skyscanner, and more.
Here is a little preview of what’s in stock for you: Let’s have a look at different customer or user states across the lifecycle that define your so-called 'growth model'.
Looking at the user states of our growth model allows us to dismantle the elements of retention, and compare it to acquisition.
The user lifecycle usually starts with people hearing about your product and then potentially joining it, which we classified as the awareness and sign-up state. After this, they try to understand the value your product offers, which we call the activation and onboarding state.
If successful, users will start to include your product into their routines during the engagement state.
And finally, if users can't make sense of your product, or it doesn't fit into their lives, they become unengaged and churn, which is called the churn or re-engagement state.
Additionally, advanced growth models include acceleration loops that fuel the acquisition and retention phase. You can learn about this in our Spotify case study about acceleration loops.
Now that you know the different elements of our growth model, let's talk more about the elements of retention, their 'moments that matter', and respective goals. Successful tech products and companies know about the importance of these 'moments that matter' and usually strive to meet as many of their respective goals as possible.
Activation and onboarding can be broken down into a so-called setup moment and magic moment, all of which have different goals.
The setup moment is all about getting your user to complete actions that enable your user to receive value from your product or service.
The goal of the magic moment is to get the user to understand your value proposition as fast as possible.
The moments that matter in the engagement phase are the routine moment and the expansion moment.
The routine moment focuses on getting the user to include your product into their existing routines.
At the expansion moment, your goal is to help users to deepen their engagement by spending time with the product. This makes it harder for them to switch if you keep providing value.
The last moment, churn and re-engagement, is all about finding the right time and tactic to change their already-formed opinion and convince them to try again. This already hints at why re-engagement efforts are usually harder, and have less of an absolute impact on your user base compared to improving activation and onboarding.
We hope the discussed concepts give you a good start to assess your retention. This was just a little excursion into the world of customer retention, if you want to learn more on this and other outcome-oriented growth strategies, check out Growth Academy and join our growth strategy courses designed by leaders from Silicon Valley and the European Tech Scene (Google, Amazon, TikTok, Spotify, Skyscanner, and more).
Sources:
- Eater, 2016, Meal Kit Delivery Startup Blue Apron Could Exceed $1 Billion https://www.eater.com/2016/10/2/13137758/blue-apron-meal-kit-delivery-1-billion-in-revenue-ipo
TechCrunch, 2017, Blue Apron will raise $587M in its IPO, valuing itself close to $3B
https://techcrunch.com/2017/06/19/blue-apron-will-raise-587m-in-its-ipo-valuing-itself-close-to-3b/
TechCrunch, 2017, Blue Apron is laying off hundreds of employees
https://techcrunch.com/2017/10/18/blue-apron-is-laying-off-6-of-its-staff/
Forbes, 2018, Blue Apron: What's Killing The Iconic Meal-Kit Company?
https://www.forbes.com/sites/brittainladd/2018/08/02/killing-blue-apron-can-anything-save-the-iconic-meal-kit-company/ - Daniel McCarthy, Assistant Professor at Emory University, 2017
https://www.linkedin.com/pulse/detailed-look-blue-aprons-challenging-unit-economics-daniel-mccarthy
