Chapter 1

Retention as The New Metric

Most CMO’s focus exclusively on the top of the funnel.

A recent 2017 study confirmed this old trend is still tried and true. Over half of the CMOs that responded are increasing acquisition budgets, while only about a third of CMOs are increasing their retention budgets.

Another study found a similar finding, with CMOs reporting that they’re planning on spending less than 30% of their budget on retention.

Unfortunately, this has been the story for years with most traditional marketing departments. CMOs have gone from influencing product decisions, or weighing in on packaging and pricing, to focus almost exclusively on advertising.

They’re like CAOs (Chief Advertising Officers); glorified project managers that hire out vendors and agencies and specialists to run brand awareness campaigns.

If gross revenues coincidentally go up, the correlation proves their value. And if not, they’re gone. CMO’s have the shortest tenure of any C-Suite exec.

That might be fine for organizations that thrive off new product purchases. But it isn’t for subscription-based revenue companies.

Market dynamics have flipped significantly in the last few decades. Obviously, acquisition is still difficult. But not for the reasons it used to be.

Decades ago, new acquisition at scale was often cost prohibitive for most. Today, it's not.

Sunny Co Clothing was relatively unknown until they offered to give away swimsuits and went from 7,000 Instagram followers to over 750,000. That’s a 10,000% single-day increase without a single ad placed.

Some back-of-the-envelope math confirms that with consumers paying for shipping, Sunny Co still came out ahead on this deal. Plus, they have a few hundred thousand email addresses to now leverage into future sales and loyalty.

Sure, this is a one-off. But it still illustrates that reach isn't as hard today as it once was, or that it requires big ad budgets as it once did.

Today, successful acquisition is hard because consumers have too many alternative options to choose from. Too many potential solutions all competing for the same few seconds of a consumer’s attention.

Nowhere is this better illustrated than mobile app stores. It’s like a perfect microcosm for what plagues most apps and new products or sites today.

Discovery has always been a massive problem for apps and it’s still getting worse.

A comScore report found that “the majority of US app users are still not downloading new apps.” 51% of app users didn’t download a single app in July of 2017, up from 49% the month before.

App store search is still the primary method for finding new apps according to the report. And yet it’s been down year over year because “most app growth efforts aren’t paying off.” One potential reason could be the continually declining app retention rates.

They show that while some apps can get users, but seem to have trouble hanging on to most of them. Apps topping the charts one month is completely forgotten the next: 80% of app users will leave within just three months according to Salesforce.

As a result of these troubling trends, one app store is making sweeping changes.

Google Play wants to make the “best games more easily discoverable by end users,” according to TechCrunch.

Historically, they have looked at the same metric other app stores use to gauge popularity: downloads.

But now, Google recently confirmed that their algorithms will also take user engagement into account, too.

The hope is that “quality apps,” measured in large part by how often and long they’re used, will start getting the credit they deserve.

The old mobile app playbook was to drive up downloads to get featured by different app store charts, leading to a huge influx of new people.

Google’s goal is to help increase visibility and discoverability for apps that show the highest stickiness:

“This is one of our ways to reward quality, which for games means promoting titles with stickiness (strong engagement and retention metrics) as well as a more traditional measure like a high star rating.”

Of course, Apple won’t openly divulge exactly how their app store algorithm works, but some unofficial accounts have found that usage stats are also taken into consderation.

This is the problem that most new products face today on a greater scale. It’s not necessarily about acquiring users. That hurdle can be cleared if you have the means for wide-scale promotions, a large company behind you, or are fortunate enough to engineer virality.

Today, the true yardstick for success is hanging onto people once you get them.

Two status from a recent Adobe study makes this argument plain as day:

  • 1

    In the US, 40% of revenue comes from returning or repeat purchasers, who represent only 8% of all visitors

  • 2

    Marketers in the United States and Europe must bring in 5 and 7 shoppers, respectively, to equal the revenue of 1 repeat purchaser.

This second bullet point is even more exaggerated for subscription-based products, because churning existing users erodes revenue faster than you can replace it.

Josh Pigford of Baremetrics calls churn “a literal cancer to your revenue growth.”

To back up this claim, he uses an example that shows how a 13% churn rate vs. a 5% one, with all else being equal, can literally halve your revenue.

A 13% churn rate might only equal a $36,871 MRR:

While a 5% churn rate would yield a $62,175 MRR:

“If your churn isn’t in the single digits, it’s absolutely the only thing you should be focusing on fixing right now,” recommends Josh.

This topic is near-and-dear to Josh’s heart because Baremetrics was staring at 10% user churn and 13% user churn just a few years ago.

After doubling-down their focus with methods we’ll discuss later in this guide, they were able to get “a 68% reduction in user churn to 3% and a 63% reduction in revenue churn down to 5%.”

This is why retention is critical in today’s world.

Profitability comes from repeat purchases.

That could mean bringing users back to an ad-supported site without them requiring any more of your ad budget, or getting them to commit to a subscription-based purchase.

Churn, which is the opposite of user retention, has the single-handed power to ruin all that.

Churn forces you to go back into the marketplace to spend more to replace revenue, first, before you can ever grow.