In this post, I want to show how focusing on acquisition over retention will drive your costs higher and your chances of success lower. Just for a quick reminder, user acquisition is the effort and money spent to drive new users to your product. Where retention is the effort made to keep users using your product once the install is complete. I was inspired to write this post, because I recently came across two very interesting articles that showed just how bad the situation in the market is for mobile app developers.
The new mobile landscape
In “Following iPhone 6 and 6 Plus Launches, App Marketing Costs Hit an All-Time High (http://techcrunch.com/2014/10/27/following-iphone-6-and-6-plus-launches-app-marketing-costs-hit-an-all-time-high/)” Sarah Perez shows just how expensive it is to acquire a new mobile app user. Her data shows that it now costs $1.23 to acquire a new user on mobile. Craziness! At the same time in the post “Mobile retention benchmarks for 2014 vs 2013 show a 50% drop in D1 retention (http://andrewchen.co/mobile-retention-benchmarks-for-2014-vs-2013-show-a-50-drop-in-d1-retention-guest-post/)”, Mark Flavelle highlights the depths the market has reached with regards to retention. A 97.7% dropoff rate within 30 days!
Mainly I want to use this post to show how important it is not to focus all of your attention on acquisition, but rather ensure that you have solid retention as a starting point. This is important, as even the smallest increase in user retention can make a huge impact.
For startups, there is a constant battle when trying to figure out how to strategically spend money to attain new users. There is so much emphasis around attracting new users month after month that a lot of times we forget about retention. Let's look back to that second number, 97.7% of new users signing up will no longer be a user after 30 days. Yes, growing your user base is crucial for survival but if 97.7% of your users are not sticking around it seems like a lot of money and effort is being wasted.
How these rates affect you
The best way to understand this is with hard numbers. For arguments sake, we will look at a fictional company called appX. Last month appX was able to attract 100,000 new users via paid acquisition channels. Using the current industry standards, this would mean that appX spent $123,000 to acquire those users and after 30 days had past only 2300 of those users remained as active users.
For appX, this means they spent approximately $53 per retained user. The first graph shows how appX could grow their 30-day users by increasing their retention rate. If we did this calculation and appX had a 20% retention rate, they would have kept 20,000 of those users after 30 days and would have only spent around $6 per retained user.
appX could instead focus on increasing their acquisition rate to keep filling the top of the funnel. This would have the same effect of increasing end active users without worrying about retention. The downside is that they would have to spend significantly more money than they already are to make these increases.
Think about retention first
From these examples, it is very clear to see that acquisition and retention need to be partners. By not focusing on both, you will probably be burning money trying to increase your user base with few users returning. Of course, in order to achieve optimal growth you first need to have new users install your app. Then, you need to spend time understanding how your users interact within your app and how you can optimize this experience. By providing the best experience to your users the more likely, they will be to stick around. When your efforts are used to attract users that have a higher likelihood of returning, you know the money you're spending to attract those users is worth every penny.