User Retention vs Churn vs Conversion Vs Engagement. What do they all mean exactly?! Whats the difference?

Let me open this gambit with the shortest explanations I can conjure up! 

Retention - a measure of users coming back 

E.g. User logins everyday and checks instagram → Thats high retention

Churn - a measure of users never coming back. You lost them.

E.g. User joined, looked around a few days, left and never came back. (clubhouse anyone? BURNN lol)

Conversion - A user taking a specific action which is more ‘commitment’ than their current state.

Sometimes used interchangeably with ‘acquisition’. 

E.g. a user joined a free trial of Crunchbase for 7 days, loved it and paid for the service. They converted. (They weren't so cheap and sneaky to make multiple email addresses and keep getting the free version over and over… cough cough)

Engagement - a measure of how deeply a user uses your product or service. 

E.g. a User A spends 1 hour on Notion, using only the document editor. User B uses Notion for 6 hours, using many /all of its features. User B is more engaged than User A. 

That's it! You can stop reading here if you want. 

In other blogs I will go into details about each of these concepts.  The purpose of this blog is to merely touch on the interconnectedness of the topics, which I think is critical to get to grips with first before going into massive detail, if you are going to build a scalable tech startup.

What are churn rates and retention rates, and how are they related?

Clients that quit or fail to renew their subscriptions within a particular time period are said to be churned. Churn as a concept can be broken down into two broad types; 

Voluntary churn

  • occurs when customers choose to cancel their subscription. Poor customer service, unhappiness with the product, and switching to a competitor are all common causes of voluntary churn.

Involuntary churn

  • occurs when consumers cancel their accounts for other reasons, or a false positive compared to voluntary. Things like their payment card is soon to expire, or that they've just relocated to a location where your services are no longer available.

User retention is the inverse of Churn. (depending on which example formula/method you use to calculate your retention or churn). For more on User Retention see my blog here. For more on Churn, see here.

Conversion Optimisation vs. Customer Retention Optimisation : Whats the Ultimate Goal?

Optimising for conversions is written in bold on your job description if you are a marketer. After all, the primary aim of marketing is to convince your consumers to do the necessary action on your website/saas/product. The quicker you can drive conversions, the less time, money, and effort you'll need to spend to reach your objective.

Optimising for conversions will increase the revenue per visitor, and ultimately achieve higher growth. Purchases, visits, and increased sign-up interest in your webinars are all positive things signals for conversion. 

However, given the huge cost of acquisitions of new customers, every business book since the 1700s (probably!!!) advocates the concept of repeat business. This is because it's easier (cheaper) to re-sell to someone you already know than brand new customers. In sales speak, they already ‘know, like and trust you’. The marginal cost of getting repeat business from existing customers is lower than for new customers. 

Furthermore, the 80/20 concept, often known as the Pareto principle, often presents itself in profit models i.e. 80 percent of your profits originate from 20 percent of your customers. Thus, your main focus should be on the 20% of customers you wish to retain. These are your most important customers, and they will have a major impact on your company. Allowing oneself to get sidetracked will result in you leaving money on the table. 

Conversions are fantastic but repeat conversions, or keeping them coming back on a regular basis is even better! Therefore when segmenting your customers, think about which one of them will be more likely to be repeat customers. Here is where optimising for Customer retention comes into play. Yes, you want more conversions, but ideally you want more conversions from the type of clients that are likely to give you repeat business i.e have higher Life time values (LTVs)

So that's optimising for customer retention versus optimising for conversion.

Customer retention is more important than conversion

Little bit of history, which I am going to badly butcher, but here is my take anyway!!

Before, there was a world where you purchased software like you did a physical object, like a table or groceries. You went to the shop and paid and you came home with a CD rom. Then over time, for many multiple market forces, including things being “on the cloud”, the world moved more towards a “service” model. Effectively, “Software as a service” became the norm. Instead of buying photoshop for $500 you now rent it for $20 a month.  It's a lucrative world, since the markets (and investors!) prefers predictable and scalable enterprises. The whole business model has changed, and every element of how you promote and engage with customers must change too. 

So you can see why concepts such as customer retention have become so important to master. 

For most business models, retention is more important than conversion, which is why you should concentrate your efforts on retention rather than acquisition. Put another way, you need acquisition (conversion) to open the door, sure, but you cannot just chase new customers, you must think about segmentation from day one.  This is the area where you want to direct your product and marketing teams. How can we keep customers happy? Is there another funnel we should be concerned about? Bad retention means that we have wasted all of our efforts and money in trying to attract the wrong consumers to sign up. We must attract the right customers and retain them as long-term customers. It is essential to your company's success.

User Retention or User Engagement?

To determine how well your new product, service, or business is doing, what metric do you employ? User retention and user engagement are two terms that are often used interchangeably. They are, nevertheless, different, despite their connectedness. 

User retention refers to a person's capacity to return to your product independent of how much they are utilizing it. In contrast, engagement is evaluated by determining how much time (or the “amount” of usage) a user spends using the product.

For example, say you measure user retention by saying “every time I open the facebook app”. I might literally open the app, and close it and that would count as a data point. 

Say you went further and defined it as “Opened the app and liked a post on their feed”. Again, sounds cool right? That's retention? Now consider, if every single user just did that; logged in - liked- exited, how long does facebook last? It doesn't. 

So this is where the complexity comes in. Perhaps a better measure would be “posting on facebook?”

Engagement looks at a broader picture of how invested users are. Do they just come in and do one action? Do they do multiple things? Do they use more and more features? Or do they find new ways to utilise the existing features into their lives? Knowing these more complex stories, through data, is what engagement is about. And no one size fits all applies. 

The idea goes that, in a world of product-led growth, customers who merely “turn up for the basics” are unlikely to pay for anything. They are also more likely to stop using it. That's why engagement is so important when talking about revenue and profits. 

The problem is that many startups are primarily concerned with "raising user retention” at the expense of thinking about engagement.

Many marketers utilize push notifications, remarketing etc to keep users coming back, and as useful as these are, they don't necessarily entice customers to use the product more and stay longer once they've begun.

The two are super interrelated, so focusing on user engagement and retention at the same time is the right strategy long term.  The capacity to engage with people and keep them engaged is essential to success and it's also a lifelong pursuit for a company. It's a moving target.  Strong engagement generally leads to better retention, and better retention generally leads to even more engagement. 

For an in depth look at engagement, see my blog here, where we go into much more depth. 

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© 2020 Dharmin Polra