What it takes for users to form habits

If a SaaS product is a house (it’s not literally, this is a metaphor), then usage and retention are the foundation — a necessary, but insufficient base upon which a successful product can be built. Are enough people using your product? Do they like it enough to come back? If the answer to both of those is “no,” stop reading this article and go fix that. If it’s a bit more ambiguous or you’re unclear about where your company’s products stand, keep reading.

In our inaugural Product Benchmarks Report, we looked at four key metrics of product health: usage, retention, engagement and conversion, and looked at average and elite product performance in those categories across financial services, media & entertainment, e-commerce and SaaS.

In this piece, we’re going to share some of what we found for SaaS products in usage and retention, as well as some expert opinions on what constitutes success for different kinds of businesses in those metrics.

Usage

Usage is the most basic of product metrics. It’s great that you’ve gone ahead and built a product, but it won’t have an impact unless anyone uses it. One commonly used metric is daily active users (DAU), which for our purposes counts someone as an “active user” if they recorded any action in an app during a day — however, many companies require users to perform an action that relates to their business such as reading an article, or viewing a report in order to count as “active.”

The graph above shows how SaaS products fared in terms of growing their average DAU (ADAU) on a month-to-month basis. In short: not well.

ADAU is not the only KPI that product managers look at, but it does matter. This may not be particularly groundbreaking, but it is true: it is difficult for a product to generate value without user growth. The difference between being in the middle of the pack or at the top of the heap is staggering. The 50th percentile is in fact losing active users month-over-month. On the other hand, the top performers are increasing usership 17.3% each month. Maintaining that kind of growth will result in a product having 6.5 times as many users after only one year.

Product managers can use Mixpanel to track their ADAU metrics and get a better sense of what kinds of actions lead them closer to the 90th percentile.

We also looked at stickiness metrics, which try to show how active your use base is. To measure stickiness, we looked at DAU/MAU, which measures daily active users divided by monthly active users. We value this metric because it shows how frequently users, well, use a product.

This graph shows average DAU over the course of a month divided by MAU for that month, expressed as a percentage.

Yet again, the gap between the median and the 90th percentile is striking — almost 20 percentage points, in this case. Even though of all the industries we looked at, SaaS had the highest median stickiness, that median 9.4% number implies fewer than three days of activity per user per month.

Stickiness of 28.7% is elite for SaaS products. This amounts to more than eight days of activity per user per month or about two days of activity per week.

Retention

Retention in our definition means: did a person perform any action and then come back and perform another action again. For median SaaS companies, that means 37% come back one week later, a number which will dwindle to only 15% by the end of eight weeks. By comparison, elite products still have retained over a third of their new and existing users after the same period of time.

There is a huge gap between median and 90th percentile retention numbers. Certainly, a company’s business model, as well as the market fit of their product, will affect what they should expect in terms of their retention numbers. But companies who are not performing as well as their competitors need to develop strategies to move retention — whether from the bottom to the median or from the median to the 90th — in the right direction.

To that end, we interviewed Mixpanel Co-Founder and Tim Trefren and Product Manager Jenny Li to find out how they think about retention. Here are the three takeaways:

When defining retention for your product, think about what it will take for your user to develop a habit.

B2B and B2C companies are facing very different parts of the market and should have expectations for retention that make sense. At B2B companies, such as Mixpanel, product teams should think more about weekly and monthly retention. As Tim notes, just because a user doesn’t go to their Mixpanel account every day doesn’t mean they won’t use it next week. Users could develop a weekly or even monthly habit of checking the data in Mixpanel, and they would still count as retained.

On the flip side, for some B2C companies, it might make more sense to define retained users exclusively as those who use the product every week or even every day, with the understanding that the vast majority of the user’s lifetime value will occur very early. Gaming and social media product teams tend to see more success with users who go on their apps every day, so they define their retained users accordingly. If the vast majority of a user’s lifetime value is generated in the first week, daily retention matters a great deal more than monthly retention does.

Regardless of how product teams define “retained users,” they should always pay attention to the behavior of very active users and high-value customers. According to Jenny, qualitative user research can help identify what aspects of the product are proving addictive, and help companies understand what kinds of actions they should encourage with their onboarding flows and customer marketing campaigns.

Retention is a funnel, so focus on early retention first.

It’s much easier to get a new user to develop a habit than it is to re-engage lapsed users, says Jenny. That means product teams at B2B and B2C companies alike should direct more of their energy and resources toward increasing early retention. A user who leaves quickly is a missed opportunity.

Moreover, the distinctions between the users who never come back and the ones who remain at Month 12 can typically be traced back to the differences in retention in the first month. Even B2B companies who take a longer view of retention should pay attention to first-month user behavior because whatever issues are arising in month 1 are likely to compound over time.

Tim explains what that looked like at Mixpanel. “Users who were invited to join an existing project have a significantly better retention rate at Month 6 and Month 12 than the users who signed up on their own. This intuitively makes sense. Users who were invited by co-workers to join an existing a project already had data to explore. That means they didn’t have to do any set-up to start seeing value. But users who signed up on their own and stuck it all the way through Month 1 tend to behave just like invited users by the Month 12 mark.” By focusing in on getting early users into the right flow, we were able to increase retention.

High retention rates don’t always mean success.

Companies with median or even 90th percentile retention rates still shouldn’t get too comfortable. According to Jenny, products that have high retention rates could have other problems. In fact, growing retention can actually be a bad sign, if paired with stagnating or negative growth. Consider: if a company stops attracting new users, it will lose users until only its most dedicated users remain. Retention will look great up and until the company shuts down forever.

Teams should have an understanding of what user journey makes the most sense for a given product and business model and then define and measure retention accordingly.

To address a retention problem, teams first have to diagnose it. Read the full Product Benchmarks Report to see how your product measures up.