Usually, retention helps SaaS Marketers assess the performance of onboarding, activation, email drip campaigns and feature stickiness. But you can also use initial retention to figure out how many users you’re actually acquiring and what is their actual cost.
On every article, guide, ebook, and workshop about Performance Marketing you are taught to optimize campaigns around conversions. And it’s perfect if you have an e-commerce store or an agency looking for clients.
But for a SaaS company, a conversion does not equal a user ( a person who uses or operates your product ).
Simply put, the signup goal gauges only the interest that the visitor might have in finding a solution for his problem ( that your tool might fulfill or not ) and the payment goal is just too small of sample size.
Even Google Adwords is set up in such a way that you can only track and optimize metrics that are rigid and independent of the dynamic universe that is SaaS.
On their way to purchasing your product, users need to perform multiple steps to confirm their quality as a retained user – onboarding, performing core actions, inviting colleagues and so on.
Most Marketers won’t dare go into the darkness of behavioral analytics.
Most good Marketers will determine success based on conversion rate, at either point of the customer journey. From a visitor to a user or from free/trial user to paying user. And between those two checkpoints, Dark Lord Cthulhu rules over data.
Calculating the cost of acquiring engaged users
Measuring the cost per conversion is easy. You divide the number of signups to the allocated budget and you got the CPA.
The cost per retained user or CPRU takes into consideration the number of signups and the retention rate.
CPRU = Budget Spent x ( Conversions x N-day Retention Rate )
Well, I guess CPRU is not that hard either.
So, if you have a budget of $10k, 1000 conversions and a Day 1 retention rate of 20%, you actually have only 200 converted users at an acquisition cost of 50$/user. If you manage to raise your Day-1 retention rate to 25%, you’ll have 250 users at a CPRU of 40$. By increasing Day 1 retention rate you get more valuable users at a lower CPRU.
This way, you’ll know exactly how much you pay “per user” as opposed to a bleak conversion.
Retained users as an acquisition barometer
Let me make it clear, I’m not suggesting you stress about the whole customer journey. There are other SaaS strategies that deal with increasing retention and reducing churn at different points on the retention curve.
It’s all about looking at initial retention as a success metric for user acquisition. This is extremely important when your SaaS model has a freemium or a free trial model.
“The easiest way to get 1 million people paying is to get 1 billion people using.” Phil Libin, CEO of Evernote
The important phrasing in the quote above is “people using”. Engaged users are the lifeblood of a scalable company. By closely watching initial retention, you make sure that you have enough engaged users that will transform into paying users.
Retention is an important metric from whatever direction you’re looking at. Whether it’s the end metric of user acquisition or the start towards revenue, retention is in the middle of everything.
If you’ve ever looked at your N-day retention, you’ll notice that disheartening initial sink. It’s completely normal, you’ll never get a perfect percentage anyway. While other departments may play a major role in making sure retention flattens out over time, it’s also your duty to deliver the best candidates.
On a cohort chart, you can see the quality of traffic your campaign has generated from 2 points of view. Vertically, you can see how your initial retention changes over time, as you reiterate your targeting, creatives and so on. Horizontally, you can see how engaged are the users on their customer journey.
The accuracy of your data depends on your Marketing tech stack proficiency and your budget.
The most common platform ( and the most prosaic, unfortunately ) to tie your lead generation efforts to retention is Google Analytics. You can see at a basic level the performance of your campaigns, whether they are paid or organic campaigns.
Google Analytics lets you create cohorts based on “Aquisition Date” aka when the visitors began their first visit. That’s not very helpful given that you’re only looking at visitors that are returning to the website without knowing if they converted or not.
You can create a new report view in Google Analytics and enable User-ID. That way, you’ll have a unified view of all your users and their actions. You can read more about User-ID and how to implement it.
In this reporting view, you’ll have a better view of your user retention.
The Cohort Analysis feature is in the Audience section. There, you can create different segments based on your UTM parameters, whether it’s campaign, medium or keyword.
You can also segment your cohorts by day or week. I will talk more in-depth about this later in the article.
For remarketing, display or sponsorships it’s pretty straightforward. For search campaigns, I would suggest structuring your campaigns into SKAGs. That way, you can see exactly the quality and intent of the users that the keywords are bringing. Certain keywords can target searchers that are too early in their research or education phase.
While GA does the trick at a basic level, you can’t customize it based on your SaaS product. You need to measure your retention around a core set of actions that are essential for the functionality of your product. The core functionality of your SaaS that makes your users come back.
If it’s a project management tool the users should be creating/modifying/finishing projects or tasks, or if it’s an analytics platform they should be creating or looking at charts.
Here you’ll need the help of a behavioral analytics platform. There are many solutions out there but for my examples, I’ll use Amplitude. You need to have events for all the core actions of your software to be able to accurately create behavior-based cohorts.
Behavioral analytics platforms offer more flexibility in analyzing and segmenting users based on in-product events. You can see how many converted clicks actually engaged with the platform after signup or at least activated their account.
Day 1 or Week 1 Retention. What should I pick?
Now, I picked the variable for the end. While the other steps can be applied to almost every SaaS business that has a freemium/trial model, the number of days you want to set for the return action is solely based on your product.
From my experience, if it’s a productivity app you might want to track daily usage. It’s best to assume that if people don’t set up and use it in the first few days, it’s highly unlikely that they’ll come back to use it. Here you might want to look at Day-1 retention.
If your product is a tool that is situational or niche, the period of time between sessions might be increased, and you’ll want to use the Week 1 retention. That way, you’ll look at users who came back to use the tool after 7 days.
If you think it’s too much to implement and track all of this, you might think about just comparing channel performance. You can look at how organic search performs as opposed to paid or referral. And track those charts once a week.
While it seems like you’re putting yourself in the spotlight, it’s in no one’s interest to only focus on the “conversion” part of the funnel and move on. You will still lose at the end if you turn this into a zero-sum game.
I highly recommend ( if you haven’t done that by now ) to set up an analytics platform that tracks core actions on your platform. That plus a solid URL tracking system will give you all the information you need to tie your user acquisition efforts to key SaaS metrics.