A high-level introduction to retention and retention curves.
When people think about SaaS growth, they tend to focus on how to get more users. How many people enter their funnel? How many new subscribers do they get per week? What are their conversion rates? What’s the next marketing stunt they can pull that will help them go viral?
Arguably more important than getting more users is keeping the ones that you have. What good is spending money to acquire a ton of new users only for them to cancel their subscriptions immediately afterwards? Retention is the piece of the puzzle that turns growth into scalable growth.
What is a retention curve
Retention is a measure of a business, product, or feature’s ability to maintain its users over a specific period of time. Retention curves are the visual representation of retention over time. You can look at a retention curve chart and understand, “after X weeks, I have Y% of my users remaining.” In the below retention curve, you can see that by week 10, only about 45% of users remain.
By looking at the shape of your retention curve, you can glean a number of powerful insights about your business. Below, I will outline some of the trends that you might see and what they mean for your business
The shapes of the retention curve and what they mean
The below chart shows four different retention curves, each with a distinct shape and different meaning for your business. I’ll go through each one by one.
The Freefalling Retention Curve
Let’s focus on the red line first. This curve doesn’t have much curve to it; it’s more so just sloped down, racing toward zero. This indicates a huge problem with your product and for your business. With this shape and slope, you will eventually hit zero, which means that every user you bring on will end up leaving your product as well. If your retention curve looks like this you do not have product market fit; stop focusing on the top of the funnel and fix your retention problem.
The Slow Bleed
Next, we will focus on the yellow line. This curve doesn’t have the same level of extreme rapid descent that the freefalling curve does, but it also doesn’t show any real strength either. There doesn’t seem to be a point where the bad-fit users have churned out but a cohort of strong-fit users remain. This curve continues to trend toward zero but over a longer time horizon than the freefalling curve, hence the “slow bleed” name. This is still bad news and fixing your retention problem should be a priority.
The Healthy Retention Curve
Moving on to the blue line, this is the shape of a healthy retention curve. You can see that around week 13, the rate of churn drastically decreases and the curve begins to flatten. Essentially, the users that were bad fits churned out in the first 12 months and the remaining users have strong product market fit. There is obviously work that can be done to raise the point that the retention curve flattens so it’s >50%, but overall this is a strong, healthy base that will be the foundation for growth as you fuel the top of your acquisition funnel.
The Smile curve
Focusing on the green line, the "smiling" retention curve presents a unique and interesting pattern. Initially, this curve exhibits a moderate decline in retention rates, indicating some users may not find an immediate fit with the product or service. However, as time progresses, the curve starts to bend upwards, forming a smile-like shape. This upward trend is driven by re-engaging and winning back some of the previously churned users.
Understanding and analyzing retention curves is a crucial aspect of achieving sustainable growth for your SaaS business. By examining the different shapes of retention curves, you can identify potential issues and opportunities, allowing you to optimize your product, service, or user experience to enhance customer satisfaction and loyalty.
A strong retention strategy not only helps maintain your existing user base but also lays a solid foundation for future growth as you continue to fuel the top of your acquisition funnel. As you strive to create a lasting impact in the market, don't overlook the power of retention. Keep a close eye on your retention curve, learn from its patterns, and use the insights to make data-driven decisions that drive your business forward.
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