New User Retention: A Guide for Measuring and Improving It

New user retention is essential for product success.

Why?

That’s what our comprehensive guide explains. It also explores:

• The difference between retention and churn
• The importance of tracking retention
• Various stages of user retention
• How to measure it effectively
• What retention metrics to track, and
• Tried and tested strategies to increase user retention.

That’s a fair bit of ground to cover, so without further ado, let’s dive in!

TL;DR

• New user retention refers to how many new users return to use the product again. The metric shows teams how valuable their product is in the users’ eyes.
• Churn is the opposite of retention. It’s how many users abandon the product.
• By acting on the insights from retention analysis, you can improve customer satisfaction and loyalty. It also allows you to increase customer lifetime value and the overall profitability of the product.
• The goal of primary onboarding is to activate users by showing them how to use key features, while secondary onboarding allows them to discover more advanced features and realize the full value of the product.
• Tertiary onboarding aims at keeping users engaged and turning them into product advocates.
• A good user retention rate for a SaaS product is 90-97%.
• Other important retention metrics include DAUs, WAUs, MAUs, Time to Value, New User Activation, Customer Lifetime Value, and CSAT.
• Personalized onboarding experiences allow users to learn how to use relevant product features in less time.
• Gamification makes retaining customers easier by keeping them motivated and engaged.
• Contextual in-app messages are designed to introduce features to users exactly when they need them. This increases the chances they will engage with the feature.
• To further improve user retention, analyze user behavior in-app and look for areas where they experience friction.
• Analyzing the paths of existing customers can help teams identify the happy paths for their new signups.
• To keep track of user satisfaction and better understand their sentiment, regularly collect user feedback via in-app surveys.
• A/B tests are experiments in which you compare the effectiveness of different engagement and retention strategies.
• Resource centers enable users to resolve their problems independently and prevent churn.
• Want to see how Userpilot can help you improve new user retention? Book the demo!

What is new user retention?

In SaaS, new user retention describes how many new users keep using the product or feature over time.

It’s one of the essential product management metrics because it indicates how well you can keep your new users engaged and satisfied – and how valuable they find the product.

New user retention vs. new user churn

New user retention and new user churn are two sides of the same coin.

Retention refers to your ability to keep new users. A high retention rate means that a significant number of users continue to use the product after their initial experience.

Churn, on the other hand, is the opposite of retention. It refers to the rate at which new users stop using a product or service. A high churn rate indicates that a large number of new users are abandoning the product shortly after their first-time experience.

The importance of tracking user retention rates

It’s not an exaggeration that tracking user retention rates (and acting on the insights) is essential for achieving your product and business goals.

Identifies friction and drop-offs early on in the new user journey

By tracking user retention rates for different user cohorts, you can identify friction points in the user journey because that’s where users tend to drop off.

Such insights can help you optimize the relevant touchpoints to improve user experience and enable them to progress down the funnel.

Increases customer loyalty and advocacy in the future

What impact on users does optimizing the user journey have?

It helps them achieve their goals in less time, and this translates into higher user satisfaction and loyalty.

Satisfied users are not only going to stay with you and keep paying their subs but are more likely to recommend your product to their friends and colleagues.

So you’re killing two birds with one stone – you increase retention and help reduce your acquisition costs by turning them into your product advocates.

Shortens the payback period of the user acquisition cost

Speaking of acquisition costs… it’s much cheaper to retain existing users than to acquire new ones.

Consequently, increasing user retention will have a considerable impact on your profitability:

Apart from reducing your overheads, it also increases customer lifetime value (LTV). That’s because users who stay longer spend more over time.

It gets even better.

Satisfied customers who experience product value are more likely to respond positively to account expansion initiatives and upgrade to higher plans or purchase additional products or services.

This allows you to recoup the acquisition costs in less time.

What are the stages of new user retention?

Different stages of the user journey have a different focus in terms of user retention – and consequently, require different strategies. Let’s have a quick look at primary, secondary, and tertiary onboarding.

Primary onboarding

The goal of primary onboarding is to lead first-time users to the Aha! moment That’s when they experience product value.

It doesn’t stop there.

Primary onboarding aims to activate users. In essence, it’s the stage when new sign-ups start using the product and realizing its value.

For example, in a social media management app, this could be connecting their accounts and scheduling first posts.

To achieve this, companies can use techniques like onboarding checklists or interactive walkthroughs that help users discover the key features relevant to their use cases.

Secondary onboarding

When users develop enough competence to perform basic actions and start using the product habitually to solve their problems, they are ready for secondary onboarding.

Secondary onboarding focuses on introducing more complex functionality. This keeps users engaged and allows them to realize the full potential of the product.

SaaS teams do it via in-app messages that prompt users to engage with advanced features and offer guidance on how to best use them.

Tertiary onboarding

Tertiary onboarding focuses on competent paid users to ensure their ongoing engagement.

In practice, this may mean targeting them with upsell and cross-sell initiatives, involving them in beta testing, and encouraging them to take part in referral schemes.

In this way, you not only ensure that they keep using the product but also leverage their loyalty and satisfaction to promote the product and identify opportunities to further improve the user experience.

How to measure user retention rates?

There are 2 ways you can measure user retention.

Let’s start with the hard way.

To calculate the user retention rate, you deduct the number of users acquired during a period of time from the number of users at the end of that period. Next, you divide it by the number of users at the beginning of the period and multiply it by 100.

Let’s imagine you had 1,000 users at the beginning of December. By the end of the month, you acquired an additional 150 users but lost 250, so you now have 900 users. Here’s the calculation:

URR = ((900-150)/1000) x 100 = 75%

Alternatively, you can run a retention analysis report in your analytics tool to calculate the figures for all user cohorts automatically.

Here’s how you do it in Userpilot:

First, define the initial event, like ‘Sign up’, and the retention event, like ‘Use feature X’. Then choose the time interval (day, week, month) and date range (last year, month, 7 days, etc), and run the query.

Userpilot will create a chart showing the retention figures for every user cohort that completed the initial event within the specified date range.

What is a good new user retention rate?

The retention figures differ from industry to industry.

According to the Exploding Topics report, the average customer retention rate for IT and software companies is 77%.

For SaaS products, a retention rate in the region of 90% is a decent result and some companies achieve as high a retention rate as 97%.

Important user retention metrics SaaS companies must monitor

Apart from the actual retention rate, there are a few related retention metrics that you should include in your retention dashboard.

Number of active users

Active users are those who regularly engage with the product over some time.

You’d normally track:

• Daily Active Users (DAUs)- the total number of unique users who perform a particular action in a 24-hour window. High numbers indicate effective customer acquisition efforts.
• Weekly Active Users (WAUs) – the number of unique users who meaningfully engaged with the product over 7 days.
• Monthly Active Users (MAUs) – how many users actively use the product in a month.

Which of them you track depends on your product. Some are designed to be used daily, like messaging platforms, while others weekly or monthly, like analytics or accounting tools.

What is important as well is the relation between daily and monthly users. For example, a high DAU to MAU ratio means users don’t stick around.

Time to value

Time to value is the time users need to reach the activation point.

The rule of thumb is that the faster users realize the product value, the higher their retention.

That’s why your goal should be optimizing the onboarding process to enable quick activation.

New user activation

The activation rate is the percentage of users who have completed the activation events. It shows you how effective your onboarding is and could be used to predict future user retention.

To calculate it, divide the number of users who have reached the activation milestone by the number of users who signed up in the same period, and multiply it by 100.

So if 100 new users sign up for the product this month but only 34 activate, the activation rate is 34%.

Customer lifetime value

Customer lifetime value (LTV) is the average value of the business that the customer brings during the business relationship.

LTV is directly correlated with retention. The higher the user retention, the higher the LTV.

To calculate it, simply add up all the revenue from all customers and divide it by the number of customers. That’s your Gross LTV. Net LTV is calculated by deducting customer acquisition and support costs.

Customer satisfaction scores

Customer retention is often a reflection of how satisfied they are with the product value and experience it offers.

By tracking it, you may be able to predict future retention rates. More importantly, collecting CSAT data can help you identify opportunities to improve the customer experience and, consequently, boost the retention rate.

Strategies for improving new customer retention rate

The main question on product managers’ minds must be how to improve retention rates for their SaaS products.

Let’s have a look at a few battle-tested strategies.

Create a personalized onboarding process to activate new users

Onboarding allows new users to discover the features that they need to achieve their goals.

The catch is that different user personas have different goals, so one-size-fits-all onboarding experiences won’t cut it. In fact, introducing features that aren’t relevant to their use case may make them believe that they’ve chosen the wrong product and churn.

That’s why you need to personalize onboarding for them.

Here’s how it could work in practice:

A user completes a welcome survey when they first log in. In the survey, you ask them what they hope to achieve with the product and what their role is.

Based on the responses, you trigger an onboarding flow that guides them through the functionality that they need to complete their tasks.

Gamify the in-app experience to engage users

Introducing elements of gamification into your product experience can increase their engagement, and consequently – retention.

A simple trick is adding a progress bar to your onboarding checklist – showing users how far they’ve gone and how close they’re to completing the checklist motivates them to carry on.

Here are other ways to gamify user experience:

• Implement a system where users can track their progress within the app. As they use the app more and complete specific tasks, they can go up a level.
• Offer users badges or achievements for completing certain tasks or reaching milestones.
• Introduce leaderboards to foster a sense of competition.
• Create a points system where users earn points for various activities within the app.
• Offer personalized time-bound challenges or quests.
• Encourage users to share their achievements or scores on social media and invite friends to join the app.

Contextually promote relevant features to boost user retention

Contextual in-app guidance is more effective at driving user engagement because it offers solutions to user problems at the exact moment when they face them.

How does it work?

Let’s imagine you’ve just released the scheduling feature to your social media management platform.

So far, your users have been publishing their posts immediately when they created them. To introduce the new functionality, you create a modal that appears when users log in for the first time after the release.

That’s often not enough to drive engagement with the features, though, so you back it up with a tooltip that appears when users hover over the publish button. Such a tooltip will be much more effective because it appears at a time when the user may need the feature.

Remove friction from in-app user experiences

You can also trigger in-app guidance to help users overcome the friction they experience inside the product. Sometimes one tooltip or hotspot is enough to help users get on with their tasks.

How do you know where to trigger them?

Use product analytics to identify the friction points.

Start with retention and funnel analysis to identify where users experience roadblocks.

Next, have a closer look at what the users that drop off do inside the product. You can do it by running path analysis, analyzing heatmaps, and watching session replays. If necessary, follow up with user surveys or interviews to get to the root cause.

Track the path of loyal customers and replicate for new users

It isn’t only the behavior of the churned users that you should analyze.

Tracking how the most loyal customers behave can be equally if not more enlightening. After all, they’ve been using the product successfully and know how to get the value out of it.

By analyzing their in-app behavior, you can identify the most optimal paths to value that new users with similar use cases could emulate to replicate their success.

How do you make new users follow in the footsteps of your power users? With in-app onboarding flows and guidance, of course!

Collect customer feedback to improve satisfaction

Product analytics can shed light on what users do but not necessarily why they do it or how they feel about it.

To get a more complete picture of user experience, triangulate the analytics insights with user feedback.

In SaaS, this is fairly straightforward.

Product adoption platforms like Userpilot allow you to create and publish in-app surveys in no time.

All it takes is to pick a template from the library, tweak how it looks, and choose the segment you want to target. If they happen to be speakers of other languages, you can automatically translate it for them.

It’s possible to trigger the survey at a specific time, for example, to collect feedback periodically or contextually, for instance, to collect insights on the feature they’ve just used.

A/B test different user retention strategies

Product analytics can help you determine how effective your retention efforts are on the whole. However, that’s only once you implement them.

What if you want to try them out before unleashing them on your users?

No problem, just run A/B tests to identify the in-app experiences that increase user engagement and conversion rates the most.

This involves creating different versions of an in-app experience, say a checklist, and launching them for different user groups. By tracking their performance, you can identify the most effective ones.

Provide proactive customer support to new users

No matter how good your onboarding is and how well you’ve optimized the user journey, new users are bound to come across challenges. And if they don’t find a way to overcome them quickly enough, they give up and churn.

The obvious solution is your customer support team. The catch is that high-touch support is extremely inefficient and difficult to scale. There’s simply a limit on the number of user inquiries and support tickets that they can deal with.

And users don’t like dealing with agents anyway. They prefer to solve their problems in their own time – even when you’re support team is sound asleep.

To enable them to do so, invest in a knowledge base with self-help resources.

Such resources can help users deal with issues before they become a real deal-breaker.

Conclusion

New user retention is key to business profitability. Not being able to retain users effectively means wasting the resources spent on their acquisition. In contrast, higher retention leads to increased customer lifetime value.

To increase user retention, prioritize delivering personalized onboarding experiences that enable users to realize product value, keep them engaged, and help them overcome roadblocks they encounter in the user journey.

If you want to see how Userpilot can help you reduce the time to value, collect user data, and optimize the user journey to drive retention, book the demo!