Importance of retention in startup growth

What's more important to you? Acquisition or retention? In this post I break down why retention generally wins long term as something to focus on.

What's more important to you? Acquisition or retention?

Probably depends on stage - most early stage startups are way more focused on customer acquisition while most later stage companies obsess over retention.

While both are super important, strong retention enables much more sustainable growth.

Now - if you have no customers or users, retention doesn’t matter at all. Or, if you are very very early stage and at a point where you are mostly capturing product feedback, focus on finding those early customers. If you need help thinking about how to find those early customers, feel free to reply to this email and I’ll give you a few ideas or send you to some content I have about finding initial customers.

Back to retention! Below is a model I built looking at two companies with identical new subscriber goals and CAC, but dramatically different monthly retention rates.

Key takeaways from Year 1:

-- Both companies acquire new subs at the same cost ($10 CAC).

-- Company One: 1,000 new subs/mo. with 90% monthly retention → 55,419 subscribers retained after 12 months → $554,187 revenue.

-- Company Two: 2,000 new subs/mo. with 50% monthly retention → 44,001 subscribers retained after 12 months → $440,010 revenue.

Despite doubling acquisition volume, Company Two ends up with 20% fewer retained subscribers and $114k less revenue at the end of the year because of lower retention.

So if you are in company two land, what do you do? Here are 3 ways to increase retention that are usually FAIRLY easy to implement.

Note: These assume you have a good or great product!

Retention tip 1: Use churn/exit Interviews to your advantage. Automate a brief survey when users cancel to uncover churn drivers and why they are going away. Bonus: try to win them back in real time (look at how companies like Asana downsell you to keep you paying even when you are trying to cancel).

Retention tip 2: Leverage personalized onboarding. Slow down onboarding as much as you need to to capture the data / inputs you need to offer personalized recommendations, flows, or starting points in the product. Faster time to action and value almost always drives higher retention.

Retention tip 3: Test out timed Incentives. If you have a subscription model, you could try to offer a targeted discount or gift at month 3 (or after X number of key actions) to help reinforce continued use. If that doesn't feel right, you could personally call your users to check in - they'd love to hear from you. Or figure out another way to reward them with something of value as they go from user to retained customer.

These ideas just start to scratch the surface of what’s possible to increase retention, but they are some of the easier tactics.

Reply back if you are struggling with retention and need any input or ideas!

Happy growing,

Craig

PS - I posted about this topic today on LinkedIn - I’d love a comment or like!