User retention is one of the most critical metrics for SaaS product-led growth. Generally, Saas user retention refers to how often they use the product. Let’s clarify what SaaS user retention is and how to improve it.
What is SaaS User Retention?
SaaS user retention represents a metric that measures how many times users are actively coming back to your product or service. Sometimes user retention and user engagement are confusing. User engagement is about how actively users use(engage) your product. On the other hand, user retention is about how often users use the product.
User retention rate is calculated by the following:
(Number of active users across period/ Total number of active users in the previous period) X100
User retention rate is how many users stay as active users after interacting with your product in the period. Usually, if the user retention rate is high, then there is a chance for better user engagement.
There are some metrics that you should consider to see better user retention and user engagement.
Stickiness Metrics = DAU/ MAU
Usually, DAU (Daily active user) to MAU (monthly active user) ratio is known as stickiness metrics. DAU is the number of daily users who open the product per day, and MAU is the number of monthly users who actively use your product. For example, if DAU is 10,000 and MAU is 50,000, your product DAU to MAU ratio is 20%. However, if your product is a B2B product, DAU to MAU ratio will be lower than B2C product. And it could be hard to measure with this matrix because people work only Monday to Friday (mostly), and during the holiday season, they will not actively use it. In this case, you can adapt WAU (Weekly active user) in this metric, excluding weekends and holiday weeks. DAU to MAU metrics will not represent user engagement well for certain products because your customer segment is more complicated, and the type of users will have different user engagement. In this case, you will see the conversion rate and churn rate.
Conversion Rate and Churn Rate
Imagine you start a massive advertisement for your product. You expected to see user growth in a few months, and you got many new active users, which means an increased conversion rate. But you also see the high churn rate after few month later. What does it mean? It means your product’s user retention is low.
Churn rate is essential for the Saas subscription model. The customer churn rate formula is following :
(Number of canceled customers in the previous month/ Active customers at the start of the month ) X 100
Mostly, user retention is correlated to the conversion rate and churn rate, which means that higher user retention leads to a lower churn rate. But the churn rate doesn’t typically increase all of a sudden. More often, it gradually increases over time. So, you should consider the number of activities. For example, you see a high conversion rate in January that gradually slows down, and you observe the churn rate is slowly increasing at a certain point in March. Since then, you will notice that the user retention is getting lower at this point. Based on this observation, you can take actions that increase your user engagement before it is too late.
Strategies to Increase SaaS User Retention
Check Retention Curve & Define User Behavior
Before you set up a strategy for user retention, you will define your users based on their behavior. For example, if you represent types of users based on their payment option, look at how long it takes to become a paid user and how long it takes to become a churned customer. Also, if they are paid users, what is the most common behavior (when they signed up for a paid subscription)? This will help you set up ideal user personas who are more likely to remain active users.
It is also great to interview churn users and ask what they currently use to solve x problem (a problem that your product solves). This will not help increase the user retention rate right away, but you will get insight into overall product improvement.
Take user Aha Moment As soon As Possible
The most crucial part that makes users decide to use your product is the Aha moment. Once you define specific user behavior, you will understand the point that is the user’s Aha moment on your product or service(such as ‘100 users who have used A and B in 2 days remain as active users ). Once you have an Aha moment, your team should focus on taking users Aha moment without any friction. There are a few things you can consider during the product onboarding process. Do not ask too many questions when users sign up for your product. Keep it short and straightforward. Request just enough information such as name, company, and email. Also, interactive product demos or walk-through product tours can help users explore your product without downloading or setting up your product or service.Interactive user onboarding will help increase user retention too. Show your product or service step by step so users can seamlessly onboard.
User retention is essential for your product growth. There are no solid metrics to measure user retention or engagement. However, you will identify Stickiness metrics, conversion rate, and churn rate to see how many users like to use your product. Understand your active user, define user persona, and see behavior on your product or service. Removing friction between conversion to aha moments can help your users become loyal customers. A product tour or interactive product demo help to show product features quickly, and interactive onboarding is to help activate your product smoothly.