What is the difference between early and later phases of retention?
While retention is often broadly discussed, it's crucial to distinguish between the early stages of retention (e.g., Day-1, Week-1, Month-1) and later stages (e.g. Month-6 to Month-7). This is because most platforms lose most of their customers in the early stages.
Most e-commerce platforms lose their customers after the first purchase. Most consumer apps lose their users within the first week. Even within first day and first hour, if measured on that time interval). Therefore, the early and later stages of retention impact a business differently and require distinct strategies and tactics for improvement.
Let's understand the difference between the two phases in more detail.
To explore the impact of different retention phases, consider two scenarios for a consumer app that both start with the acquisition of 10,000 new users:
- Scenario 1: Early retention (Month-1) of 30%, followed by consistent late retention rates of 80% from Month-2 to Month-12.
- Scenario 2: Early retention (Month-1) of 10%, with the same late retention rates of 80% as Scenario 1 from Month-2 onward.
Calculations for the number of active users at the end of Year-1 are as follows:
- Scenario 1:
Initial active users after Month-1: 10,000 users × 30% = 3,000 users
End of Year-1 active users, assuming each subsequent month retains 80% of the prior month's remaining users: 3,000 users × (0.80 ^ 11) ≈ 3,000 users × 0.085 = 255 users - Scenario 2:
Initial active users after Month-1: 10,000 users × 10% = 1,000 users
End of Year-1 active users, under the same retention conditions: 1,000 users × (0.80 ^ 11) ≈ 1,000 users × 0.085 = 85 users
We have 3x the number of active users despite retention rates being same during later stages! These results emphasize the crucial role early retention rates play in determining the size of the active user base at the end of the year, highlighting a dramatic difference in outcomes based on early retention effectiveness.
Takeaway:
The differentiation between early and late retention phases is pivotal in shaping business strategies. High early retention leads to a substantially larger active user base, enhancing overall business health and stability.
Upcoming concepts will go into specific strategies to optimize both early and late retention phases, aiming to maximize long-term customer engagement and profitability.