How to Optimize for Retention: Lessons from 9,452 Companies

In today’s competitive landscape - acquisition is table stakes - understanding how to optimize for retention is a must.

According to InsightSquared, reducing your churn rates by even as little as 5% will result in a profit increase by as much as 25-125%. But, the big problem here is that reducing churn rates and improving retention has never been harder.

Recent statistics from ProfitWell indicate that 10 years ago, customers needed 56.7 hours on average to adopt a product. One year ago, the average customer needed 6.8 hours to adopt the product, while for some particular products they needed just a few minutes.

Fighting with churn rates and retention comes with a different set of methodologies and processes you must use. In this article, we will cover several different levers you can pull to optimize for retention.

Reducing churn with in-depth customer interviews

The main problem for a lot of companies and one of the biggest reasons why a lot of startups fail is they don't understand their unique buyer.

In order to improve your customer retention, it’s critical to have an in-depth understanding of your target audience’s needs and problems.

According to a recent survey at ProfitWell, we found that:

  • 68.3% of companies are having 10 or less customer development interview per month 
  • 17.7% of them have 11 to 25 interviews per month
  • 10.1% of them have 26 to 50 interviews per month
  • 3.9% of them have 51+ interview per month

Honestly, these are very disappointing results.

A lot of surveyed companies said that instead of doing customer development, they would do A/B and multivariate tests.

In addition, a lot of companies are also doing these tests on a very low volume:

  • 47.8% of interviewed companies do zero experiments and tests per month
  • 37.81% of companies do 1 to 3 tests per month
  • 12.1% of companies do 4 to 10 tests per month
  • 3.9% of companies to 11+ tests per month.

The reason why it’s very important to understand your customer’s needs and behaviours is that a lot of us are building the wrong products.

To illustrate this, ProfitWell built a new methodology of analyzing your customer’s opinion over your products, features and measuring consumer sentiment towards your product.

This methodology is based on two axes of value - willingness to pay and the relative value of the product.

Let us illustrate this with a coffee example:

The features of coffee could be taste, temperature and the country of origin.

When you go out and ask your loyal customers how each of these three features is important to them and how much each of them indicates the value of money they will spend, you could get the following data points:

Now we can see the following results:

  • The most important feature is the taste
  • They are pretty indifferent about temperature
  • Less interested in the country of origin

When it comes to willingness to pay, here are the results: 

customer-sentiment-graph

People who care about taste are willing to pay 20-30% more than the other folks within the survey sample. Those who care about temperature are willing to pay about 20% less, while those hipsters who care about country of origin, are willing to pay about 35-40% more than anyone else.

Keeping this example in mind, we can calculate the expected impact of product and features on growth:

product-growth


From the picture above, you can see that a product consists of four different feature groups:

  • Differentiable features - features who have high value and high WTP
  • Add-Ons - features who have low value but high WTP
  • Core Features - features who have high value and low WTP
  • Trash Features - features with low value and low WTP

When I reached out to my customer and asked them in which box their latest features belonged to, a lot of them responded with differentiable features and add-ons, while very few of them responded with core features and trash features.

But, when I reached out to their customers, the results were the opposite:

product-feature-graph

A lot of the customers reported that the newest features belonged to core features and trash features, while very few of them actually said they belong to differentiable features or add-ons.

This is clear proof that a lot of us are building the wrong products.

You should understand what do your customers care about, what’s unimportant to them, what is their lifetime value, CAC, and even what are their hobbies and interests.

The biggest and main difference between the companies who are doing very well and those who don’t is that the first ones know their customers like their best friends.

Skyrocket your retention with a better time to value

In a world where every second matter, you must make sure that your customers see the value as soon as they create an account.

When it comes to reducing time to value, you can focus on several things to improve it:

Lead your customers through carefully planned user onboarding processes

Even today, a lot of people underestimate this process. How to optimize retention and reduce active churn rates will mainly depend on how you create your user journey and user onboarding flow.

The basic user journey consists of three main pillars:

  • Unleashing the “aha moment”
  • User activation
  • User product adoption

Leading your trial users towards the “aha moment” is the first step for improving retention. The “aha moment” is a mental state where your user perceives the value of your product and your problem solution.

You can unleash the “aha moment” in various ways, and some of them could be quick product demos, product tours, or asking your trial users to take some basic action.

The next step is leading your users towards taking some action with your primary features.

User adoption is the state where your user has constant contact with both primary and secondary features and start using your product.

User onboarding is the separate topic, and we can talk about it literally for hours - but it’s very important to understand that it is a very crucial part if you want to optimize for retention.

Focus on better customer support

I know it may seem so obvious, but it’s really important. And the truth is, a lot of companies have very poor customer support.

According to GetFeedback, 73% of consumers said that a friendly customer representative can make them fall in love with the brand. 


Try reducing the time you need to help someone. Even today, the support for some products I’m using can last for days.

Try avoiding email exchanges every third day. Instead of that, you can ask your customer for a phone number, and offer them a call whenever they need it.

Force annual payments

This is another growth hacky way to reduce your churn rates and improve retention. Asking your customers for annual payments and offering them some incentives, like discounts, is a powerful way of improving your retention.

According to ProfitWell, companies who have 0% annual contracts can see churn rates around 10.40%, while those who have 75-100% annual contracts will see churn rates around 2.59%

Use a Value Metric In Your Pricing Model

A value metric is the way you measure value exchange in your product.

If you’re selling a pair of shoes, then your value metric is ‘per pair of shoes’ and as customers buy more pairs your business expands.

Ultimately, value metrics are the linchpin to successful execution of a product-led go-to-market strategy. Why? Because you're aligning your revenue model directly with your customer acquisition model. 

Your value metrics play a vital role in how you price your product, set up your product metrics, and build your team. But, what the heck does it look like?

  • For a video platform like Wistia, a value metric could be the number of videos uploaded. 
  • For a communication application like Slack, a value metric could be the number of messages sent. 
  • For a payment processing platform like PayPal, a value metric could be the amount of revenue generated.

When using value metrics, you create an environment where your power users are charged according to how much value they receive from your product and your at-risk, low-use users are charged a small amount.

By using all these levers together, you'll be able to significantly reduce your customer churn.

The Bottom Line

With rising customer acquisition costs and lower willingness to pay for software products, it is more important to optimize for retention than ever before.

Before you even start your battle for improving your retention, you must do whatever it takes to understand your customer. Without that understanding, it is too easy to create features and products that customers don't care about.

Patrick Campbell
Patrick Campbell
Patrick Campbell is the CEO of ProfitWell (formerly Price Intelligently), the software for helping subscription companies with their monetization and retention strategies. ProfitWell also provides free turnkey subscription financial metrics for over eight thousand companies. Prior to ProfitWell, Patrick lead Strategic Initiatives for Boston based Gemvara and was an Economist at Google and the US Intelligence community.
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