User retention and SaaS marketplaces
User retention is one of the most relevant elements that can influence the growth and the revenues of your SaaS marketplace.
You can invest as many money as you like into user acquisition, but the real challenge is to turn casual customers into habitual users of your marketplace and of the products you are selling.
Why you should care about the user retention of your marketplace
Many marketplace managers believe that they should only invest on attracting new visitors and convert them. Unfortunately, this approach forgets about one key element: retention. Let’s just stick to the facts:
- It is 6 to 7 times more expensive to attract a new customer than it is to retain an existing one
- The probability of selling to an existing customer is up to 14 times higher than the probability of selling to a new customer
- Increasing customer retention rates by 5% increases profits by 25-95%
Building on that, a strategy that focuses only on user acquisition is incomplete. Attracting and converting users is expensive: try to get the most out of the investment!
What is retention and when should you start thinking about it
Retention measures of how many users return to your product over time.
When you manage a marketplace, you should care about at least two kinds of retention: how many users return to your marketplace and how many users return to your products.
Focusing on retention means building a base of engaged customers that will help you to become profitable faster.
According to Brian Balfour (VP Growth at Hubspot) “every improvement that you make to retention also improves all of these other things — virality, LTV, payback period. It is literally the foundation to all of growth, and that’s really why retention is the king.”
The truth is that you should care about retention from the beginning. It does not matter how many users you have, your loyal customer can help you to grow at any stage.
Critical event and product usage: the basis of user retention
To measure and optimize the user retention of your marketplace you need to determine your critical event and product usage interval.
A critical event is the action you want users to perform to consider them active or retained.
In other words, which is the action you want your users to do when they use your product?
For example, you might want them to activate a free trial of a service or to complete a purchase on your marketplace.
Once you have identified your critical event(s), you should determine your product usage interval. This means how often you expect your users to come back and perform a critical event.
How often do you expect your customers to come back to your marketplace and activate a free trial or complete a purchase? Typically, on a marketplace you do not expect your customers to perform critical events on a daily basis. However, the services you sell could expect to see their customers to perform a critical event on a daily or weekly basis.
Stages of user retention
As seen before, the concept of retention is strongly connected to the concept of active users.
However, not all active users are the same. As a matter of fact, at a given time your active user are made up of new, current or resurrected users. Churned users, on the contrary, are no longer part of your active users.
- new users: users who are in the first interval of using your product If your marketplace has a monthly product usage interval, your new users are those who are in their first month of marketplace usage.
- current users: users who used your product in the previous and current interval. For a monthly product usage interval, current users are those who are active both this month and the month before.
- resurrected users: users who is active in the current interval, but was not active in the previous interval. For a monthly product usage interval, resurrected users are those who were active at least two months, then inactive for one month and then active again in the current month.
- churned users: users who did not use the product in the current interval, but was active in the previous interval. For a monthly product user interval, churned users are those who were active in the first month, but then became inactive.
This analysis can help you to understand the retention rate of each cluster. In this way, you can determine different strategies to engage your customers at every stage of their journey and improve the retention.
To go further in this analysis, you should also determine how users of each cluster behave when they are using your marketplace. For example, you could find out that most engaged users of the new users cluster compared at least four products before making the purchase. Or that churned users activated 2-3 trials.
Improve your user retention
Measuring the user retention of your marketplace will tell your whether you are growing or not.
Moreover, once you know your retention metrics, you can identify the obstacles to your growth and remove them.
Knowing problems and obstacles will help you to set your retention goals. Do not forget that, as always, your goals should be: specific, clear, realistic and challenging.
However, the user retention optimization is a never-ending process: there is always room for improvement and growth!