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HOW RETENTION RATE AND CUSTOMER EXPERIENCE GO HAND IN HAND

ARCHANA MADHAVAN

INSTRUCTIONAL DESIGNER

2,540
people reacted
5 -minute Read,

Posted on June 23, 2020

Companies that build the best customer experiences can see the benefits of that
work reflected in the retention rate.

Five years ago, the slogan was “Retention is king.” Now it’s “Retention is the
new growth.” Yet companies still tend to spend six to seven times more on new
customer acquisition than keeping existing customers coming back.

That isn’t to say that you can ignore acquisition, of course. But the best way
to drive sustainable growth for your company is to focus on retention. And the
best way to improve your retention rate is to build amazing customer
experiences. The most successful companies know this. In fact, an Incept Results
study found that enterprise businesses that invested in customer experience made
an additional $700 million within three years.

So we’re here to explain what retention rate is, why retention and customer
experience (or CX) go hand in hand, and how companies use product analytics to
build great customer experiences

WHAT IS RETENTION RATE?

Retention rate is a measure of how many of your customers continue using your
product over time. It’s a signal that your product is valuable enough to
customers to keep them coming back (and keep spending money). Customers who
already see the value of your product are more likely than new users to buy more
of it, use it again and again, or renew their subscriptions.

HOW TO CALCULATE RETENTION RATE

To calculate your retention rate, you need to define (1) your critical event and
(2) your product-usage interval.

Your critical event is an action a user takes that tells you they are retained.
It could be making a purchase, renewing a subscription, or completing an
activity in an app. You should pick something that has a connection to your
business goals, indicating that their behavior will lead to monetization on your
end. It should also be something that shows the user is receiving value on their
end as well.

Your product-usage interval is how often you expect people to use your product.
If you make mobile games, you probably want users to play every day. Airbnb, on
the other hand, likely operates on the assumption that people will take one or
two vacations a year.

THE METHODS FOR MEASURING RETENTION RATE

Once you’ve defined these terms for your own business, there are three common
ways to measure your retention rate:

* N-day retention tells you the proportion of users who came back to your
product on a specific day–for example, the percentage of users who came back
on the third day after sign up.
* Unbounded retention tells you the proportion of users who came back to your
product on a specific day or later–for example, the percentage of users who
came back to your product on day three or any day after.
* Bracketed retention, as the name suggests, lets you define a custom window
and tells you the percentage of users retained within it.

To know what type of retention analysis to use, you first have to understand
what kind of value your users get value out of your product and how often. We
wrote an entire playbook on retention that can help you do this type of
analysis. Or you can peruse our compilation of 40+ resources on the subject or
take our Retention 101 email course.

WHY RETENTION RATE AND CX ARE LINKED

The experience you create for your customers—both good and bad—may be the single
largest determinant of your retention rate. Customer experience represents a
summation of how customers feel about your brand, the experience they have
within your product, their interactions with your company, and every point in
the customer journey. By understanding the overall customer experience with the
product, teams can identify what changes should be made to improve that
experience in the customer journey, and consequently the retention rate.

The Zendesk 2020 Customer Experience Trends Report found that 74% of customers
feel loyal to a particular brand or company, and 57% of respondents said that
customer service influences their loyalty to a brand. That means that the
experience you create for your users has a big impact on whether they will
retain. Qualtrics also found that customer experience correlates with loyalty,
and loyal customers are five times more likely to make a repeat purchase and
seven times more likely to try a new product offering.

In short: good customer experience creates loyalty, which drives your retention
rate, and higher retention drives growth.

Meanwhile, a negative customer experience can also have a huge effect on your
retention—in the opposite direction. In the same Zendesk study, 58% of customers
stopped buying from a company after a bad experience, and 52% switched to a
competitor’s product or service. For B2B companies, it’s even worse: 66% stopped
doing business with a company after a bad experience.

So how do you improve your customer experience and, therefore, your retention
rate? To achieve good CX at scale, you need insights from product analytics to
help you understand the full customer journey and make informed decisions about
how to improve your product. Just check out the real-world examples below.

HOW REAL COMPANIES IMPROVED THEIR CX WITH PRODUCT INTELLIGENCE

The companies in the case studies below have one thing in common: they used
product intelligence to drive their CX and retention strategies. Data is more
important than ever for shaping your product strategy and getting a 360-degree
view of the customer journey. Once you gain insights from your customer data,
you can make informed decisions to build an excellent in-product experience. As
customers experience delight and gain value from your product, you’ll see your
engagement and retention rates go up. Per Zendesk, companies that leverage the
most data (defined as those in the top 25% of managing data relative to other
similar companies) see a 79% reduction in customer wait time and solve four
times the number of customer requests.

Here’s how some real companies used product intelligence to build great customer
experiences and improve their retention rates.

MICROSOFT

Microsoft was creating a new set of productivity features for Office365:
MyAnalytics. They used product intelligence with Amplitude to streamline and
simplify the user experience. First, Microsoft identified distinct groups of
customers that engaged with MyAnalytics differently. Then, they looked into
which features each “customer persona” gravitated to. Finally, they used those
insights to promote relevant sets of features to the right customer persona. The
result was a 4x increase in user engagement and big boost to their retention
rate.

POSTMATES

Postmates wanted to find ways to engage their users and make their product more
sticky without turning customers off. With product analytics, they tested
campaigns with push notifications, email, and in-app messaging to see which
efforts led to increased engagement and retention. Postmates was also mindful of
observing whether any of their campaigns had a negative effect on the customer
experience. Using Amplitude and Braze, Postmates monitored marketing campaigns
in real time to manage their ad spend efficiently while delivering unique and
creative customer experiences, such as a tie-in with The Bachelorette on ABC.

IFLIX

Iflix is a leading entertainment service in Southeast Asia. They needed to
increase their retention because only a small proportion of their users were
returning to the platform. Iflix used product intelligence to create seven
customized onboarding experiences for their users, instead of one generic
onboarding flow for everyone. Product intelligence allowed iflix to better
understand what content resonated with which users, based on the user’s unique
interests and behavior. From there, iflix continued offering personalized
recommendations for their customers to boost their retention rate.

Iflix also improved the customer experience when they discovered that the
subscription sign-up was too high a barrier for new users. So they decided to
offer all videos for free in the user’s first 24 hours. That led to more video
views, more ad revenue, and more conversions. Getting users to their “aha”
moment quickly, where they discover the value of your product, is the first step
on the way to long-term retention.

UNDERSTAND RETENTION

Focusing on CX leads to higher retention and better business results. Product
intelligence—a combination of product analytics, data management, and behavioral
targeting— gives your team the tools you need to understand your customers and
create amazing customer experiences.

Learn more about how you can improve your retention rate with our Retention 101
course.

ARCHANA MADHAVAN

Archana is an Instructional Designer on the Customer Education team at
Amplitude. She develops educational content and courses to help Amplitude users
better analyze their customer data to build better products.

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