Oleksandr Yaroshenko
More posts from Oleksandr Yaroshenko
Investors wish they could forecast the future and decrease the uncertainty regarding how a business will grow. Subscribers’ retention on the annual plan is directly related to the product value. However, it comes with a significant lag, e.g., an annual plan is only observable a year after the customer signed up.
So, the best predictors for resubscription are the current engagement rates of your existing subscribers. Let’s see what engagement metrics gain the most significant interest from investors.
Engagement over long periods at the end of a subscription
There are many engagement metrics to look at. What matters most is how your subscribers engage with the core app functionality over longer periods, specifically closer to the end of their subscription. If they are using it actively, this signals they are getting the expected (or hopefully even beyond expected) value from the product, increasing the probability of their renewing for another year. The obvious metric to review is how often your user opens the app toward the end of the period in question.
For a more in-depth analysis, look at the usage of the core app functionality during these periods. Cohort engagement analysis comes in handy here; you can see what share of users who started using your application 12 months ago are still opening it and using the core functionality three, six, nine, and 12 months after the first use. When you see, for example, a 60% churn rate in the third month after installing it, the cohort obviously will not have a high chance of getting more than 40% of its customers to resubscribe in nine months because they are highly likely to have canceled their annual subscription in these initial three months. This situation is when the direct relation between engagement and retention comes into play.
Frequency of interactions with core app features
To make a solid argument regarding the value customers get from the product, investors want to see how many core app functionality interactions happen on average over the life of the respective subscribers’ cohort. For example, interactions beyond just opening your app mean subscribers are consciously seeking value. Each startup should define its “key engagements” and help users by guiding them toward this core activity inside the product.
Inside my company, where book summaries constitute one of the core content types, we analyze how many summaries users, on average, read on a monthly basis and what book summaries drive more engagement. This data fuels our gamification strategy. Thus, we make changes based on the data-based insights we observe, e.g., create new challenges taking into account the logical intensity and topics of interest for our users.
Content quality metrics
The completion rate or similar metric represents your content’s quality and depends on the type of app. For instance, a “finish rate,” or how many customers who started a book summary and read it to the end. If the finish rate is low, that may mean that the customer has an extensive range of content selection, and they might go through the library by previewing what is inside the specific content piece. To avoid this trap, the product analyst might track the completion rate after a certain “aha-moment,” which, in the case of the book summary app, would be a user reading through the second chapter of the summary.
Other types of apps may use the session length or other key events (e.g., number of finished workouts for health and fitness apps, number of exported videos for video editing apps) to represent a similar concept for investors. Developers can modify the tracking system to tailor the previewing use-case and not distort the objective reality.
Stickiness of your product
DAU/MAU or WAU/MAU and other similar metrics are another question of interest for investors, but with a lower priority than everything mentioned above. Why does it matter? These stickiness ratios can show how your user base uses the app, or they can trace the traffic to your app. Everybody using the app only once indicates a low propensity to renew the subscription or continue using the product after the trial or beyond freemium (whenever they exist in the product).
For example, Duolingo has done a great job with reinventing “daily streaks” for its users. The latest shareholders letter from Duolingo as of Q4 2023 says that the app’s DAU/MAU ratio reached 26.9%, while some power users reached 1,435-day streaks.
Find a “golden cohort” of users
Another way to show your engagement metrics when you have a massive audience or are an early-stage venture is first to find a “golden cohort” of your users. This cohort represents an audience as close to your target users as possible.
A cohort of 1 or 10 users might not be persuasive enough for investors to trust that the startup’s team will replicate the metrics with a broader audience. Hence, it should be a delicate balance in selecting a big enough cohort with good enough engagement metrics to be proudly called “the golden cohort.” You can do the same based on your markets: steady penetrated market vs. a new growth market. Investors want to see a positive future for your product.
Dissecting your users’ cohorts by showing a 5-6x difference between a “core” market and a “new” one is a great way to show the potential upside of scaling operations and investing more into new markets. This information includes localization or other adaptations of your product to specific market needs.
Over time, past performance and steady uplift in app engagement metrics will provide more trust in the team, but a specific plan of future action should complement it. Ideally, this should include fully realized MVP projects and A/B testing showcasing the potential of the full-scale implementation of the planned changes and upgrades to the product.
User retention is directly affected by improving customer engagement, which influences your business’s top and bottom lines from a financial point of view. As a side effect of improving engagement, your customers enjoy an improved user experience. This outcome leads to fewer support tickets and a higher willingness to purchase more from your product ecosystem, e.g., purchasing product upsells and providing grounds for virality effects by positive word-of-mouth advertising. The benefits of improving your core engagement metrics are vast and should be a cornerstone of your sustained long-term growth strategy.
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