Make customer retention your number one growth channel
This course will teach you how to define and identify retention points for your customer base, how to slow down or flatten churn, and how to improve retention long term.
Customer retention for subscription products
By Val Geisler, email and digital strategist
Course length: 3h
Some of the companies that train their teams at CXL Institute:
When it comes to growing SaaS companies, most people are following a traditional, top-down approach and using demo requests as the main way of qualifying new business.
What separates the top 1% from the bottom 99%?
For SaaS companies, the term “growth” often means acquiring new customers, doing biz dev, and building out a sales and marketing team. But what about the customers you’ve already attracted?
This course will teach you how to define and identify retention points for your customer base, how to slow down or flatten churn, and how to improve retention long term.
Introduction video (2 min)
Retention is the most underrated growth channel
Stop letting your churn rate keep you up at night. Start focusing on retention efforts instead. Retention activities are the secret to increasing your customer lifetime value (CLTV)… and the number of zzzzz’s you can catch on a regular basis.
In this course, Val will teach you everything you need to know about why retention leads all other growth strategies…and how to maximize it.
In just 6 short online classes, you will be able to
- Know the difference between good and bad retention
- Identify the keys to really great retention
- Implement strategies that will positively affect your churn rate
- Learn how to improve retention long term
This course will teach you how to define and identify retention points for your customer base, how to slow down or flatten churn, and how to improve retention long term.
Sneak preview: Lesson 1
Retention = revenue
This course is right for you if…
- You want to find ways to grow your MRR without hiring a sales team.
- You measure customer churn rates as a KPI for your role.
- You have struggled identifying retention blindspots in your overall customer experience.
This course is probably not for you if…
- You’re not a SaaS or subscription model-based company
- Your churn rate is at a number that doesn’t concern you in the slightest.
- You think the only key to growth is new customer acquisition.
- You can’t influence the relationship your brand has with your customers
Skills you should have before taking this course
This course is suitable for everyone, but it helps if you have:
- A working knowledge of your current churn rate.
- The ability to impact the customer experience (through email, app-based UX, collecting data via surveys, etc.).
- A basic understanding of how churn affects a business focused on monthly recurring revenue.
About your instructor, Val Geisler
Val has been obsessed with customer experience since her high school cashier job at the local Target store.
From retail to events and now software, Val has seen it all: the good, the bad, and the ugly.
As an email marketing strategist, Val combines her background in customer experience, content creation, and digital strategy. Nothing brings her more happiness than helping businesses unblock the way they connect with their customers.
Your full course curriculum
Retention: The most underrated growth channel
Retention = revenue
Learn the ins and outs of retention, how to define it, and ways it can impact your business.
Companies that shift their focus to customer retention find it to be more efficient. They're marketing to customers who already have expressed an interest in the product, and they're already engaged with your brand. It makes it easier to make the most of those experiences that they're having with your company. In fact, retention is a more sustainable business model, and it's key to sustainable growth. So, there was a study done by Bain & Company. They're the inventor of the Net Promoter score.
They said that increasing customer retention by 5% can lead to an increase in profits 25 to 95%. The likelihood of converting an existing customer into a repeat customer is 60 to 70%, while the probability of converting a new lead is five to 20% at best. So, in this lesson we're going to start by looking at bad retention, some good retention, and some really great retention. We'll talk about the impact retention has on your revenue. It's a good thing by the way, and some calculations you're going to want to consider before diving into a retention effort.
Now, we're not talking about actual retention efforts just yet, simply looking at retention rates and laying the foundation. So, we're going to start in the middle so we have something to compare moving forward. We'll look at something we can all relate to, phone apps. Let's go. Retention is the most underrated growth channel, but retention equals revenue. Think about it, keeping the customers you've already attracted gains you more revenue long term than going out and trying to attract new customers who may or may not be a good fit.
So, let's go over the lesson objectives. I know I had mentioned that we were going to talk about apps, and we'll get to that. But right now, let's just talk about what we're going to learn in this lesson overall. At the end of the lesson, you will know what good, bad, and great retention looks like. You'll learn how to calculate your retention rates. You'll understand the monetary payoffs of reducing churn through retention, and you'll learn about the untapped growth opportunities of retention. So, the journey of this course is a winding one, but first we have to start with the setup, and that's this lesson.
It's the foundation. It's the basement of the building, right? We're going to go over what retention is, what it looks like, give some examples, talk about it in, at a very high level before we dive into the nitty gritty. So, stick with me through this lesson. Retention is greater than acquisition. So, we talked about how companies spend more money on customer acquisition, since they view it as a quick and effective way to increase revenue, but customer retention is faster, and it costs less, right? So, retention makes sense as a sustainable business model, and it's key to your growth.
So, what does average retention look like? Again, we're starting in the middle, so that we have something to compare good and bad to, right? So, average retention. This is the average retention curve for Android apps. So, Andrew Chen did some data research, and he put together some graphs on retention rates based on anonymous data points from over 125 million mobile phones. So, this graph shows a retention curve.
It's the number of days that have passed since the initial install of the app, and what percent of those users are active on that particular day. So, this is referred to, you might hear people talking about this in a sentence like, the D seven retention is 40%, especially if you live in the app world. So, that's the day seven retention is 40%. It means that the seven days after the initial install of the app, 40% of those users were active on that specific day. Now, in the case of iPhone apps, or phone apps in general, we might be looking at daily active users, and in the case of a software that is maybe more focused on monthly active users, but active users matter.
Active users are people who are logging into your app or your piece of software. They're getting the data that they need. They're getting the resources that they need, and they are seeing value in paying for your product. You might be thinking, but people don't pay for apps, and that's true in a lot of cases, or maybe it's a couple of bucks, right, a one time payment, and you run a software company with a monthly payment, and it's much higher. It's $49 or $199.
Those are much stickier points to come up against every single month. So yes, in the case of apps we can see that, you know, looks like around 75% of its daily active users
are gone within the first three days, right? So, they're using it. Everyone's using it that first day, and then they're gone by the third day. And then within 30 days, it's lost 90% of its daily users, these average apps, and then 90 days, three months in, it's over 95%. So, 5% of users are left using the app three months in. That's pretty disappointing from an app perspective, right? And we certainly want to have greater retention on the software side of things. So, the thing is is that there are over one and a half million apps in the Google Play Store, and only a few thousand keep meaningful traffic around long term.
If you think about this in the world of software, there are thousands of software being developed every single day, and especially even just think about the niche that you are in. How many competitors are there in your industry? When you think about that, and think about keeping your users around long term, people have options, and we also live in a highly distracted, distractible world. So, we want to make sure that we keep our users around on a daily if not monthly basis.
Now, when we talk about these daily active users that are being lost, in this case it doesn't mean that they're going completely inactive. They just might not have used the app that particular day. Maybe they used it a different day that week, or a few times that month. So, different apps have different usage patterns, and the same can be said for software. Just because you lose a daily active user, or even a monthly active user doesn't mean you're losing a monthly active user, or a quarterly active user.
So, you can't have one without the other, but just because you've lost someone temporarily doesn't mean you can't get them back. Andrew who put together these pieces of data said that, "most of the leverage in improving these retention curves "happens in how the product is described, "the onboarding flow, and what triggers "you set up to drive ongoing retention", and that is why we are (mumbles). So, the second graph we'll talk about is a comparison of those retention curves based on Google Play ranking.
So, there's a very clear and direct correlation, and you can see it right here. So, the top apps have much higher day one retention rates and end with a stronger day 30 retention rate, and even carrying over into days 60 and 90. Those top 10 apps are that top line. The next 50 apps are the next line down. The next 100 apps, the next line down, and so on. So, what's interesting though is look at that day one to let's say day 30.
It's all about the exact same pattern. So, users are finding the top apps immediately useful and they use it often in that first week, and then the drop off happens about the same pace as average apps, which tells me that, you know, it really is about customer retention. It's not about how powerful the app is, or the piece of software. It's not about how useful it is to you. It's about habits and customer psychology and human attention span, and that's what we're addressing here.
So, it's further validation that the best way to change that retention curve is to pay a lot of attention to the very first few days of the use of the app or the software, and in particular their very first visit. So, users are then able to set themselves up for success. Your customers are owning their own success on your platform. So, the data here definitely relates to mobile apps, but I've seen the same data for desktop clients and websites, and they all look the same.
So, whether you're building a mobile app or something else, another piece of software, the same idea applies. "Bending the curve happens via activation, "not notification spam." Now, retention is more than just customer numbers. It's revenue. It's not just a matter of we have 100,000 users.
Great, but what does that mean in terms of revenue? Are you bringing people in? Are those 100,000, the majority of them, in the first three months of using your product, and they're going to churn? Are you battling a high churn rate? You're running a business. You need to charge for your service, like a monthly subscription. Assuming that a percentage of people will end up paying for your service that are on a trial, and then they might slowly upgrade over time, especially if that's the way your pricing model is set up that the more their business grows the more they pay your service.
If you can forecast how many people will be using your product, you should also be able to project how much money you'll be making. So, let's look at what your revenue looks like broken down by cohort when you have poor retention. So, Dan Wolchonok who's the head of product and analytics at Reforge, he thought it would be interesting to model out what different types of retention looked like for a SaaS product. So, he hypothesized what would it look like if you acquire the same number of users over time, but don't hang onto them, pretty standard situation.
He wondered what it would look like if you had really good retention, and then what are the tipping points for user growth, and he wrote about this on his blog. So, he built a couple of simple Excel models and these graphs that we're looking at come from that. So, this chart shows different cohorts who, cohorts are groups of people who start using your product at any given time, okay? So, this is showing different cohorts and how they impact your overall monthly recurring revenue long term.
Things look really good and you can easily distinguish between the various cohorts six to 12 months in, right? You can see all those different numbers right there. But look all the way to the right. What was a clear definition between cohorts starts to look like a bunch of lines that blend together. So, you can see all the colors closer to the left on the chart, but as we move to the right it really starts to blend together. This is where retention impacts your revenue. Your cohort sizes go to next to nothing.
So, the people who joined at the exact same time, they're all fizzling out over time, and those people are no longer paying for your product. The graph doesn't look really bad, but what about if you look further into the future? Dan wanted to know what it would look like to take this graph even further, and that is right here. It doesn't look very good. It actually starts to go downhill. So, we have a downhill curve as we head towards the right hand side. The groups get smaller and smaller, especially those cohorts who have been around for a very long period of time.
You can barely distinguish between them all the way to the right. Also, you're barely making any more money a few years later, okay? So, if you take a look at here, in the middle of this graph that Dan mapped out, we're in 2018, and those cohorts if you
draw a line straight up you're at about $11,000 in MRR.
18, from 2018, September 2018 to September 2020, draw that line straight up, and you're barely at $15,000. So, over the course of two years you've increased your revenue by $4,000, your monthly recurring revenue. So, at the end of a five year period what started as nothing became $15,000 a month in recurring revenue.
Now, if you know anything about monthly expenses, and what it takes to operate a business, and what it takes to operate a business that is taking on thousands and thousands of new customers you know that you need more than $15,000 a month to make that business successful. So, Mixpanel did some research, and we're going to talk about Mixpanel throughout this course. We'll do a deep dive into it later on in another lesson, but right now I just want to talk about this research that Mixpanel did that most apps and software have a six to 20% eight week retention rate depending on their industry.
So, after eight weeks most apps and software are retaining six to 20% of their customers. So, there are two ways that products can benchmark retention, against themselves, or against other companies. Measuring against your own performance week after week and month after month is called retention analysis, and it reveals trends. For example, if your retention is trending down, you might be concerned and try to isolate the causes. If it's up, you might try to isolate what changed, features, marketing campaigns, behaviors of new customers that led to that growth, and do more of that.
But when you're measuring retention against other companies you need competitors performance statistics, which usually aren't available to the public. So, the next best resource are industry benchmark studies, like Mixpanel's Product Benchmark Report. It analyzes anonymized data from over 1.3 billion unique users to reveal the trends. For most industries, the average eight week retention is below 20%. For products in media or finance, an eight week retention rate over 25% is considered elite, elite, at over 25% of retention.
For SaaS and e-commerce, over 35% retention is hitting that same elite status. So, these are some elite retention rates, and I want to show you the graphs that Mixpanel put together in their report. These are some elite retention rates. I want to show you some graphs that Mixpanel put together in their reports. These are done by weeks, right at the bottom. So you can see zero, one, two, three. Those are weeks, and then we have percentage of the customer numbers, and it's broken out by different industries.
So, we have finance, SaaS, e-commerce, and media, and you can see how the retention rate drops over time,
and with SaaS really hanging high on the graph long term, but definitely trending in that downward slope. So, what does great retention look like? Great retention doesn't mean that you keep every single customer forever and ever, not a flat line. So, let's go back to Dan's model, and assume that 10% of the long term users end up paying for your product and they pay say $50 a month. They don't immediately upgrade. That happens slowly over time. What would that graph look like? Dan wondered too, and he put the graph together.
It looks like this. At the end of this five year period, you're making $80,000 a month in recurring revenue. That's right, 80,000 versus that 15,000. That's a lot more sustainable for your business model. So, you're probably wondering how you calculate your own retention rates. A retention rate is the percentage of customers who are still with the company after a specific period of time. It asks in essence that a user perform any action, leave, and then come back and perform another action. That's what you're looking for here.
If the answer is yes, the user has been retained. If not, they've churned. So, retention rates for users are based on action. So, you have to ask what is an action? By default, most companies define action very loosely. It's typically referred to as any event the user takes with their platform, including simply opening it. So, to get a more refined sense of whether they're actually measuring the users' likelihood to return some product teams tighten up that description, and include only valuable events.
So, it might be a purchase, it might be a sign up, it might be completing an onboarding checklist, or shares or other things that make sense for that particular business. And then you want to know what the period is in which retention is measured. So, you determine the period over which you'll measure that retention for your customers. For a lot of consumer facing apps, it's common to track several, such as one day retention, one week retention, two week retention. The product team should base the period length on where they see drop offs in returning users.
So, back to that research that Mixpanel did. Most apps and software have a six to 20% eight week retention rate depending on the industry. Product teams with that range in mind should work back from that point. So, if you are in the software industry you're going to work back from that eight week point. The point that you're looking for is typically where the percentage of users drops below the point where the revenue they generate covers the acquisition cost for all those users acquired at the beginning of the period.
So, how many actions within that time period constitute retention? Is it just one? Do they just have to shop up once? You need a threshold. You want to decide, is it one action, three actions, or some combination of valuable actions, right? So, maybe it's making a payment and converting to a premium user, or taking an action in the app and upgrading your account. Then you can calculate your retention. So, what is your retention rate? If you don't already know, go find out. To calculate it, you take your current number of customers retained after X number of days, 14, 30, 90, and your total number of customers at the start of the same X number of day period.
That is your retention rate. So, if there were 100 customers at the start of the period and only 27 have taken action in the past 14 days, then the retention rate would equal 27%. So, you can use a product analysis platform like Mixpanel, and again, we'll talk about that more later on. But it will calculate your retention rate for you, and it will also break it down into easy to understand dashboards. It's also important that you know your customer lifetime value. So, cost of acquisition is not greater than, should not exceed the lifetime value of your customer.
So, CAC is the cost to acquire customers, and it should not exceed your LTV, the long term value of your customers. As a rough rule of guidance that might be helpful to you, LTV should be about three times CAC for a viable SaaS or other form of recurring revenue model. Most public companies like Salesforce and HubSpot have returns that more like five times their acquisition cost.
So, you want to recover your customer acquisition cost in less than 12 months, or your business is going to take way too much capital to actually grow. So, Patrick Campbell from ProfitWell says that it's essential that you understand your customer acquisition cost precisely, so that you can set goals that will both compensate losses and generate profit. You need your customer lifetime value to be greater than your customer acquisition cost by three to one.
But you'll only be able to benchmark that ratio by knowing your customer acquisition cost. So, we're going to talk about that. Oftentimes companies miscalculate their customer acquisition cost and then calculate with skewed numbers. Patrick talks about this a lot. It matters a lot to him at ProfitWell, and it should matter a lot to you. It really messes with the true value potential of your customers, the plan for your growth, and the way you monetize if you do your calculations wrong. You really can't afford to get it wrong.
The general way to calculate your CAC, your customer acquisition cost, is pretty straightforward. But there's a lot of room for error. So, here's the formula. Your customer acquisition cost is equal to your total expenses to acquire customers divided by the total number of customers acquired. It seems pretty straightforward, right? But what are your total expenses to acquire your customers? There are some really key points to remember to get an accurate calculation. So, "your business' CAC is a key factor in determining "payback period and your company's future profitability." Patrick says that, and I couldn't agree more.
So, your true acquisition expenses, think through every single expense that it takes to get a new customer. Facebook, Twitter, Instagram, social media, Google AdWords, ad space on blogs and other websites, content marketing, keyword research, lead scoring, data enrichment, content management systems, website design, and salary of your sales director, salaries of account executives, and long term compensation, bonuses, overtime, salaries of sales development representatives, so, anyone that goes into biz dev beyond account executives, salaries of your marketing manager, that all factors into your total customer acquisition cost.
So, what is your true CAC? You don't want to think about freemium users as acquired customers when you calculate your CAC into that LTV to CAC ratio, right? Your freemium users are not yet acquired customers. People on a free or trial plan are using your service, but you have no guarantee that they are going to pay you any money. There's no lifetime value from those users yet. If you put those users in your total count of acquired customers and consider them to be acquired it really skews down your CAC.
Remember that when you're thinking about your CAC it's not a race to the bottom. It's helpful to your cashflow to pay less to acquire a customer, but the very cheapest customers are necessarily the ones you want to acquire. They won't see value in your product, and they're not likely to stick around very long. It's really important to know how to monetize your customers once you've acquired them. You want your customers that are going to stick around and pay long term. Sometimes people refer to this as stay and pay.
It's how you achieve an LTV that will pay back and earn you a profit past your customer acquisition cost. So, answer this. Does your retention rate map to your industry's standards? Map your cohorts. There's a link to the spreadsheet in this lesson. Grab that spreadsheet, and get busy on that template. So, you've learned about the monetary pay offs of reducing churn through retention. You've seen what bad, good, and great retention look like. You learned how to calculate your own retention rates along with your true cost to acquire your customers and you learned about industry standards as a point of comparison.
So, I want you to go calculate your own retention rate, and I want you to map your cohorts using the spreadsheets that are provided, and I also want you to calculate your true customer acquisition costs. There are resources for this. The original files are by Dan Wolchonok. I've made some changes to them and updated them for this course, but there's spreadsheets both in Excel and Google Sheets. Have at it, your choice. See you in the next lesson. So, as you can see, it's important to know how you're going to monetize your customers once you've acquired them.
You want customers that are going to stay and pay. This is how you'll achieve a customer lifetime value that will pay back and earn profit past your initial cost to acquire them. In the next lesson, we're going to talk about the importance of those early days with your customers, how the impact long term retention from day zero, and what you can do right now to see a massive impact on your revenue. See you there.
The early bird gets the retention worm
Retention begins the moment your customer signs up. Learn about how you can impact Week 1 retention.
So how do you get above the noise and become the long-lasting company? By tackling the low hanging fruit everyone else is missing. Talking to your customers. Yes. I don't mean talking to them about features or the product itself. Of course you and your team do that all the time. What I'm talking about, is sitting down with them to discuss their business, why they do what they do, to learn what makes them tick. These are interviews, not product calls.
And the most powerful framework for that, is Jobs To Be Done. In this lesson we'll talk about, well, talking. Why you should not only consider, but actually do customer interviews, how to have conversations with their customers. They give you insights into what they need. How to build relationships that lead to long-term retention. And I'll give you the exact tools you need to go out and get the job done. This lesson is called, The Early Bird Gets the Worm.
But really, we can call it my favorite lesson, because we're talking about those early days of retention, which involves onboarding and getting to know your customers early on. So, we're going to find out what the early, aha moment, you've heard about that, right? The aha moment, has to do with retention. It really does impact long-term retention. You'll also in this lesson learn how to impact retention from day zero. So, even before that, aha moment is achieved, you can learn how to impact retention from there and you'll also see how you can get your customers to early adoption, which means you're making more revenue faster.
Adoption is when they convert it into a customer, into a paying customer, rather. So, going on the journey of this course, we're on lesson two now. We're moving less from the set up and into the how to. So, getting into a little bit more the tactical, we're still kind of touching on a little bit of set up, but much more in the tactical now for the next couple of lessons. So, this is a chart from Blissfully's annual SaaS trends report. And the question that it poses is, well, it inherently poses the question of, how do you get above the noise and become a long-lasting company? This is a chart of the number of SaaS vendors from 2010 to 2018.
And you can see that there was like, this really slow growth from 2010 to 2014 even, and then it just hockey sticked since that 2014 time period. So it's really noisy. How do you get above the noise and become one of those long-lasting companies? Well, you do it by tackling the low hanging fruit everyone else is missing, which is talking to your customers. Now, I don't mean talking to them about features are the product itself. Of course, you and your team do that all the time. I'm talking about sitting down with them to discuss their business, why they do what they do.
Learn what makes them tick. These are interview not product calls. That's what we're going to dive into in this lesson. So, there's this tip of the iceberg phenomenon, right. 1 to 5% of your customers complain to management or to, you know, your home office. 45% of them complain to a customer service rep
or maybe even a salesperson. 50% of your customers encounter a problem but don't ever complain about it. So, you want to talk your customers. And the most powerful framework those conversations is Jobs To Be Done. So, these sources of customer insight won't get the job done and if you're looking here, you need to look further. So, social media. An analysis of social media showed .2% of tweets indicate a job to be done.
That's not enough. Customer forums, their feature oriented discussions is dominated by issues, largely. People talk about how-tos and make products suggestions. Again, not about a job to be done. Surveys, preset questions really move people into very specific insights. They lack follow-up and a deeper understanding. So, Alex at Groove said, by removing the prefilled answers in our exit survey, we were able to unlock loads of valuable and actionable data.
So, just by changing prefilled answers in an exit survey, they got way more value out of the data that came through.
It does take more time. You have to set aside more time for analysis, but interviews and open ended questions really helps get at what the customer needs. Social media, customer forums and surveys put you in a passive position. You're looking at little, tiny scraps of insight to understand the job to be done. So, what's Jobs To Be Done? Jobs To Be Done interviews are ways to get at what it is that the customer wanted when they came to your product.
So, a great example in, kind of everyday life outside of the software world, is a house cleaning service. This is an example I use quite often. So, if you've heard me talk about this before, just take a listen one more time. The house cleaning service that you hire is likely, yes of course, you want a clean house. But you're likely hiring a house cleaning service because you value your time in a different way and want to spend your time doing other things.
You see, Maybe you have a higher hourly rate than it costs to hire a housecleaner. So, the two hours that a team of four people spends cleaning your house, versus the eight hours that it would take you. I don't know how big your house is or how messy it is. But, let's say it's, you know, two hours versus eight hours, the time it would take you as an individual, you can earn that money back, time and time again. You can do the math and see that there's a real value in hiring a house cleaning service.
So yes, you hired a house cleaning service to clean your house and to have that end result. But really, the job to be done is to save your time for things you would rather be doing and maybe even things that make you more money in the long run. So, Jobs To Be Done interviews, help you get a better picture of the different emotional and social aspects influencing the decision making process. So, you might be asking if fear was a driving decision-maker, if other people were involved in making this decision.
So, there is a template that I have included with this lesson and there's room to record both of those responses. You can even note events along the timeline in it. So, definitely take a look at it. We'll talk about it here a little bit more. You'll want to print several of them to have a page for each event, if you want to have more space. So, when you do your interviews, what you gathered enough experience and develop a feel for all those different forces at play, you can start noting forward driving forces,
things that move things forward and then backward pulling forces, things that pull your potential customers away from your product. So, the questions you choose for the interviews are slightly different than the questions that you might have with paying customers of an existing product. The goals for the interview isn't to decide on specific features to build. That's really important. The goals for Jobs To Be Done are not about features, or even to get feedback on features or big ideas that you have. The goal is simply to understand your customers and you're understanding how they went from first thought all the way through to buying and the experience that your customers have with your product.
So, you want understand what pains exist in your ideal customer's day, what causes those pains? How those pains are currently solved or if there solved at all. We want to uncover any motivations any situations that happened in their day-to-day, any anxieties that they have. Want to help the customer become familiar with recalling those small emotions that lead to big decisions. There are two key points for this kind of interview.
First, is to find the first thought. The first thought is a really key metric in Jobs To Be Done. So, you want to help them find the first thought and get them comfortable. Comfortable with the interview process. Comfortable with talking to you. A lot of times, look, the fact of the matter is, not any companies do a Jobs To Be Done style interviews. And so a lot of times, customers come into these interviews expecting to answer questions about the product or even wanting to give you feedback about the product.
That's not what we're going after here. We're going after that first thought. So, here are questions that you could ask to tease out that first thought. When did you first realize you needed something to solve the problem? So, when did you first realize you wanted some kind of project management software? For example. Where were you? Maybe they were sitting at their computer. Maybe they were at a conference. Maybe they were at a networking event. Were you with someone? Who were they talking to? What were they doing? With a on a Slack Team? What were you doing or trying to do when this happened? So, were they sending emails back and forth a lot in this example of a product management software? In their inbox constantly trying to figure out, tracking notes from your notepad and into their inbox.
What were they doing or trying to do when this happened? So be curious about their emotion and go deeper. Yeah, this is a funny little meme, because I want you to realize this is super important. So, grabbing your attention with this funny meme. Yes, you want to lean in and ask him to tell you more. So, questions you might ask are, did you ask anyone else what they thought about this particular purchase you were going to make, about this product? What was the conversation like when you talked about purchasing that product with your business partner or with your spouse or with your assistant? And then before you signed up, did you think about what using the product would be like? Where were you when you were thinking all of this? Were you think out loud, to other people? Were you thinking to yourself? And then, did you have any points of anxiety, anything that made you nervous about the purchase? Was there anything about the product itself that made you nervous? Did you hear something from someone else about it? What was it? Why was that making you nervous? So, these are questions that, when you hear Jobs To Be Done interviews, you hear a lot of wait, tell me more about that.
Why? What is that about? Who said that? Where did you see that? Where were you when that happened? You'll hear the interviewer ask that a lot and just digging in and moving past their standardized answer and digging in a bit more into the emotion behind it. Exploring emotion is tricky and it does take time to master. A pointer here is to take opinion based questions with a grain of salt. You're asking someone to analyze why they did something and that's a pretty uncomfortable thing for adults to be asked, why, why, why.
If you have a small child, you know how uncomfortable that is. But people really, rarely understand why they did something. They have probably retold the story in their mind to, that it doesn't matter or maybe they're trying to look good to you. But you want to keep digging in, and asking some questions. So, what events or situations led up to the problem that you want to solve, with your product. How do people decide to solve that problem right now and what's still not working about existing solutions? These are all things you want to have in the back of your mind as you explore these deeper emotions.
So, how do you figure out what matters the most? Essentially, you are trying to create a mental timeline of your ideal customer's decision-making process. And that is where these three questions really come into play. You know, what led up to the problem? How are they currently solving it? What's not working about that? All of that is the timeline of your ideal customer's decision-making. It is time to distill all that qualitative data into a whole bunch of categories. Well, three actually.
My friend Claire Suellentrop, a cofounder of userlist.io has three questions that she uses to organize this data. Question one: Are enough people motivated to solve this pain? Or is there a stronger pain somewhere else? Question two: What common events or situations trigger this pain point? Question three: What existing solutions do we not want to compete with? So there's a spreadsheet, that goes along with this lesson that will help you categorize each of those three questions,
your answers into each of those three questions. It's a spreadsheet that Claire uses, that you can use too. So, you're looking for your customer's definition of success. The easiest way to figure out what success looks like for your customer before you can break that down into milestones, is to ask them. What is their desired outcome? How do they measure success themselves? How are they measured by their boss for their team? What are they trying to achieve with your product? Asking them what success means them first, with lots of different cohorts, so you can pick an ideal customer along different cohorts, but asking them what success means to them first, allows you to analyze that for similarities and patterns, pull it all down to a handful of must-have outcomes and then give it back to your customers for their buy-in.
But remember, you are getting them to tell you the outcomes they desire. And maybe the milestones needed to get to that success with your product. You're not asking them what they need or want. So, you're not talking about features, you're not talking about work flows. It's that whole, if Henry Ford had asked everyone what they needed, they would've said, a faster horse. Right. They'll just tell you what they've done before oh what they wish they could've done. When you do that, the product you'll end up building will be iterations on existing ways of doing things.
People wanted a faster horse. They didn't know they wanted a car. You can really make big leaps forward by understanding not what they mean to do, but what they need or want to achieve and you can use your entrepreneurial
engineering, creativity prowess to solve for that. So, once you have all of that data collected, you can then better map out a full customer lifecycle. Customer lifecycle is a really important tool to get you through what your customers need from your product. So, how your customers move from stage to stage? This is where you're identifying retention gaps and what is coming next for them. There's a jumping point at each phase of the journey, so you want to build in transition points from each phase to the next one.
So, once those transition points are found, the next step is figuring out how to ensure customer's make it through the transition. Transitions are always rough. You want to make sure that you help your customers through the transitions. There's going to be different friction points, depending on the transition itself. Creating a new Instagram account is something a lot of us are familiar with. So, we'll use that as an example. When you first create an Instagram account, you need three new pictures or you're prompted for three new pictures.
You are prompted to add other people in your network onto the account. There are a few different steps that Instagram takes you through creating a new account. So, you might not have the availability of pictures that you want to share. You might, Another customer might think, oh, I don't know about privacy. I don't want just anyone to see these pictures and someone else might not understand how to actually get pictures onto Instagram.
So these are different friction points, that require a different transition, so that they can go from a customer who has no photos they want to share to someone who has way more than three photos they want to share. Or a customer who is concerned about privacy to a customer who understands their privacy options. It's really about giving your customers creative solutions, testing those solutions, running them through data, and then using different engagement points and different transitions to help your customers depending on their own individual journey.
And companies like Instagram, buildout multifaceted programs
that account for and address transition points. Once you've addressed those friction transition points for each phase of the customer lifecycle, it's time to go all the way back around to the beginning where there's finding that initial value. This is often called, the wow or aha moment. You might wonder, what does a wow moment feel like? You've probably felt it yourself has a customer. The wow moment is achieved when your customer recognizes either actively or subconsciously, that your product or service is an integral part of their life.
It's going to improve their life and they must have it. It's something that makes your customers say, wow, this is awesome or aha, this is why love this product. They're really important. When your customers churn or they never really adopt the product to begin with, is because they never encountered their wow moment, most likely. There are occasional side cases. But really, if they're churning and have been a paying customer or they never fully adopted the product in the first place, is likely because they never encountered that wow moment.
So, couple of things to keep in mind about the wow factors, is they convey much more value than the effort that requires. That means that they are low effort and high-value. Much like adding a couple of photos to Instagram. When you get those likes from other people, that's high-value just from a low effort of adding a couple of photos. They are usually not a feature. It's what the future makes possible.
So, using that Instagram example, it is not that you could upload photos to an app, because you can do that with lots of apps. But your uploading photos to a group of people who are following those photos and you're able to share them alongside captions and all of those things. And they are super powerful when you are able to communicate them with analogies, for examples. But they have even more power when the results are real user interaction.
So, you want to be able to tell them and show them
and have them do it. Doing it is so much greater than telling them how to do it. The chart that you're seeing here is from Mixpanel. It's a set of cohorts. And we'll again, dive into this in future lessons. But you can see retention rates for various cohorts in this chart. And it's all about that wow moment, to keep those long term retention rates, over time. When you're identifying your wow moment, you want to look at both your quantitative and your qualitative data.
So, talking to your customers, which we're talking about now, collecting data from your churn customers and then also looking for wins and opportunities within your data. Information from your customers is really helpful, but it really only paints half the picture. We have to look at both qualitative and quantitative. You cannot look at one without the other. So, if all you're doing is looking at customer profiles and data coming into your apps, you're missing the boat when it comes to customer interviews.
You're missing all of that qualitative data when it comes to customer interviews. Every time you talk to a customer, you want to validate what you hear in their stories against the data on the app side. So, you can look at quantitative against qualitative and qualitative against quantitative. To recap what we talked about in this lesson, you have learned more about what that early, aha or wow moment has to do with retention. We talked about how to impact retention from day zero and that is talking to your customers.
And you saw how you can get your customers to early adoption, which means making more revenue faster. Again note, it's talking to your customers. There's so much value in talking to your customers. So, your assignment from this lesson is to download the template for your Jobs To Be Done interviews. I want you to compile a list of your customers to reach out to, for interviews. Go ahead and pull them all into a spreadsheet so you can track that outreach. And then, get those interviews on the schedule. Don't delay it. Just get the interviews on the schedule.
Getting a couple under your belt, will really help feel confident and comfortable. You could even try to practice on your team before you talk to any customers. Maybe you can talk to some of your VIP customers or people you know personally, so you can start to feel comfortable with the process. But that template will really help you in your interviews. So, your resources are that interview template, and then I have a little bonus resource for you. Because you're probably asking, oh, I have to email all these people. What am I going to say? Well, I have an email template that will help you request those interviews, and that's included with this lesson as well.
So, a closing thought. Customer happiness is impacted by nearly all departments in the business. So, there's obvious contributors, like customer support, customer onboarding, sales teams. Less obvious contributors are our pricing. It needs to reflect the value received by the customer. Product management. Not just the right features. But also coming up with the right pricing and upsell options, to get even closer to negative churn. Uinux designers, product development, QA, training, documentation, operations, the people are responsible for uptime and application performance.
Sales of course can damage customer happiness by overpromising. Marketing can also set wrong customer expectations. Remember, it still takes money and time to close and support a bad fit customer. But money and time is better spent toward bringing in a customer that you can actually help. There has to be clear communication between customer success, sales, marketing, engineering. When you start to notice patterns that show you customers are being sold on the wrong product offering, it's time to come together as a team and solve for the issue.
Sometimes that means, ultimately changing the way you qualify a lead. Or maybe there are changes to onboarding a product that can help make a certain segment of customers be more successful. No matter what the solution is, you'll save time and money by not telling the customers, who ultimately won't be successful. And the only way you can get to this end result, is to talk to your customers. Coming up, we'll talk about how to apply the insights from your customer interviews, to segments.
We'll look at how changing messaging and actions for various segments can increase retention and even save customers who might have otherwise churned. It's a good one, so stick around and I'll see you in the next lesson.
For best results: segment
Creating a personalized new user experience based on where they are in their customer journey can create a lasting effect on retention and reducing churn. Learn the ins and outs of segmenting for the greatest impact.
Beyond the first 90 days
Learn how to build retention strategies into every interaction with your customer, no matter how long they’ve been around.
Slowing the curve
Retention is not always about new features. This lesson will teach you how to slow down or even flatten the retention curve outside of product development.
Measuring and improving retention long term
Quantitative and qualitative data impact retention rates. Learn how to identify those areas of opportunity and use them to refine your churn busting efforts over time.
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