While onboarding is huge in its role in retention, nurturing customers to adopt and love your product doesn’t stop after they’re in your ecosystem. Growing and retaining a userbase is all about minimizing user friction throughout their journey and gathering data that helps you achieve that goal.
So, how do we use product-led growth metrics to improve our customer acquisition and retention? First, we need to understand the framework that these metrics sit within.
The Product-Led Growth Flywheel
The flywheel (known by some as the marketing flywheel) is a framework for thinking strategically about the lifecycle of every user of your product and meeting and exceeding their expectations at each stage of their journey. With the help of flywheel metrics, it's easier to map out next steps and improve the overall customer experience.
When you craft your customer journey correctly, you're not only going to increase your user satisfaction and retention, you're going to increase customer advocacy - a huge source of new user acquisition. This is the flywheel effect that turns potential customers into paying customers.
This is a reimagining of the classic Pirate Metrics. If you want to dig into Pirate Metrics and why we think they need redesigning, I’d recommend checking out this article by the co-founder of Appcues, Jonathan Kim.
The structure, and each step’s corresponding user ‘type’, is as follows:
- Activation (Evaluator)
- Adoption (Beginner)
- Adoration (Regular)
- Advocation (Champion)
Let’s dive into what each of these steps of the framework mean, then we’ll explore the metrics that will help you incorporate it into your customer journey.
Activation (user type: evaluator)
Users at this stage – evaluators – are new to your product or are free users with little or no prior experience of your product. They’re cautiously excited, but yours isn’t the only product they’re looking at.
All of your users come to your product to solve a specific problem. You really want to focus on driving them to the moment they say “aha” – their activation moment.
Facebook found that, when users added 7 friends within the first 10 days of using the platform, they were far more likely to become long-term users.
7 in 10 became Facebook’s activation model, which meant they designed their initial product experience to drive that behavior – to make it easy, frictionless, and desirable for users to get those first 7 friends.
Look for patterns in your users’ behavior. Look at what your best users did when they first started using your product and if there is a pattern (like the 7 in 10) and then focus on helping new users follow that pattern.
Supplement this data with user feedback. Behavioral data is hugely useful, but nothing beats going to the source. Ask your users about their journey and their activation moment.
That includes feedback from churned users – negative correlations are just as valuable as positive ones. Try to get on the phone or at the very least create an exit survey.
If you can find a pattern, design your user experience to drive evaluators to their activation moment.
Adoption (user type: beginner)
Once you’ve got those activated users, you want to help them explore and understand the full ecosystem of your product. Show them best practices, reduce friction, and be there whenever they need guidance.
For this stage, you want to establish guidelines for what normal, healthy usage of your product looks like.
Look for regular users who get value from your product but aren’t power users or advocates (yet!) – how often are they logging in? What features are they using? What percentage of your total products do they use?
Establish benchmarks and then you know what a "good" adopter looks like.
For example, a "good" adopter for a company like Spotify might create a playlist, listen to their Discover Weekly playlist, and record >2 hours of listening a day.
Adoration (user type: regular)
For regulars, their experience of your product should feel like walking into a coffee shop and seeing their order ready on the counter.
At this point, your goal should be to really delight them and expand their usage even more.
Release new and premium features – not so you can make more money (that can be a great consequence, but it shouldn’t be your primary motivator), but to deliver more value to them. You want to delight your regulars.
Ask for their feedback and measure their satisfaction so you can understand whether their journey is at the level of coffee-on-the-counter or if it’s still brewing.
Advocation (user type: champions)
These users are heavily invested, they recommend your product to people, and form an emotional connection with your product. You may see them talking you up on social media, in their content marketing efforts, or in their email list.
At this stage, you are providing value outside of the job-to-be-done. These users are the people who wear your t-shirt once a week and know your team by name. They are happy customers through and through.
Your goal with champions is to encourage their advocacy. This could be in the shape of referrals and recommendations, public reviews, or case studies and testimonials.
Tap into their delight and enjoyment of your product and harness it to create a new wave of evaluators at the activation stage.
Product-led metrics you should know about
Now that we understand the Product-Led Growth Flywheel, let’s look at some of the metrics that will help you get great returns from using it.
Time to value (TTV)
TTV is the time it takes new users to reach their activation moment.
Your goal should be to have this metric as low as possible – you want this down to minutes, not hours or days.
The faster you get users to activation, the more likely it’ll be that they stick around.
Product-qualified leads (PQLs)
These are typically activated users with a free trial or freemium account – the kind of leads you know are ready to pass on to your sales teams.
If you’re talking PQLs, you’re going to be dealing with free users who are ready for the sales conversation, probably sitting somewhere in the adoption stage.
Expansion revenue is the anti-churn, and one of the most important levers for SaaS growth.
Expansion revenue measures the revenue generated from existing customers through upsells, add-ons, cross-sells, etc.
Net revenue churn
Net revenue churn measures the amount of money lost after accounting for new and expansion revenue and is often expressed as a percentage.
There is a formula you can use for this:
(X-Y)/Z=net revenue churn
X=revenue lost in period
Y=new and expansion revenue
Z=revenue at beginning of period
A company that lost $100 in revenue but gained $200 from new and expansion revenue will have a net revenue churn of –10%. (100-200/1000 = –0.1)
This is called net negative churn. If you can build a business that has net negative churn, I can promise you you’ve got a great chance of success and attracting future investment.
Virality is the average number of new users an existing user can bring onboard and convert to paying customers.
With a strong virality metric, your business can grow exponentially.
Metrics are only part of the picture
According to HubSpot’s State of Inbound report, new users consider word of mouth and customer references as their primary sources for making purchase decisions for new business software.
If you’re not providing an exceptional user experience, all the metrics in the world won’t save you. You can spend hour after hour on flywheel metrics, but it's not likely to have a big impact.
Optimize to your heart’s content, but always be sure to deliver joy, value, and results to your users. This is what customer satisfaction and customer retention is all about.