Customer Retention - Appster

Habitual DependanceTM & User Retention
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Table of Contents
Key Startup Metric
User Lifecycle
.........
....
User Retention and Why It Matters
.............
..........
......
Onboarding
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11
Gamification
...........
12
Customer Support
Community Building
The Hooked Model
...
Email and Notifications

Other Strategies
14
...........
16
...........
17
Measuring Retention Rates
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19
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20
References..........
22
Cohort Analysis
Introduction
Appster invests very heavily into research and development in the area of optimizing digital products. We are absolutely fascinated with start-ups and are always trying to
ask ourselves what truly makes start-ups or certain digital products more successful than others. Weve been able to identify key strategies that these wildly successful
digital products implement religiously.
Weve put together a series of whitepapers on a lot of these topics we think are absolutely crucial to implement within your start-up/digital product. In this whitepaper, we
talk about something weve coined called Habitual Dependence and what is essentially the art of creating a behavioral dependence between a user and a product.
Understanding what Habitual Dependence is and how to implement it correctly will give you a much higher chance of success when it comes to delivering value and
building proper user retention into your product.
We are extremely passionate and dedicated to educating entrepreneurs about how to build great products. It is our mission to equip and educate entrepreneurs so that
they can go out and change the world with their ideas. In fact weve pledged to create 20,000+ pieces of content in the next 5 years. We hope you will like what weve put
together here, if you dont please give us feedback as we are continually improving and better trying to figure out how we can help YOU the entrepreneur.
If you enjoy this whitepaper, go and check out the others we have on the website :-)
Josiah Humphrey and Mark Mc Donald
Appster Co-Founders
1. The Key Metric

Treat your customers like they own you. Because they do.
Mark Cuban
Key Startup Metrics

Startups love to point to big growth numbers, and the press loves to publish them: one million downloads, 10 million registered users, 200 million tweets per day. These growth metrics
can often be signs of traction (which is why we report them), but just as often they are not. According to Dave McClure of 500 startups (and many other founders / investors) startups have
to focus on real numbers or what he calls AARRR.
Acquisition
Activation
Retention
Revenue
Referral
The very reason is that metrics such as high user traffic or page views can easily convince founders their startup is doing well, and cause them to direct their focus and resource towards
growing these numbers for more success. However, high traffic of users who dont stay can become lethal for startups in their early days.
Below is an overview of the most important metrics in the user lifecycle.
1. Customer Acquisition Cost (CAC)
2. Activation
To calculate your CAC, divide your sales and

marketing costs, including overhead expenses
in these departments, for a given period by the
number of customers you picked up during
that period.
Activation is a measurement of the conversion

rate from when a visitor or prospect moves to
becoming an active user, the signal being
some kind of sign up or download.
High CAC is considered a no. 1 startup killer.

A measure of how viable your CAC is, lies in
your lifetime value of the customer.
5. Engagement/Habitual Dependance
What happens after users sign up? Are they
using your product? If so, how frequently?
Engaging customers and building a habit
forming product will drive better retention and
higher customer satisfaction.
A low activation rate usually means that your

product isnt interesting enough or they found
it difficult to get started.
6. Life Time Value (LTV)

To calculate LTV you first have to know how
long most customers stay with you. It could be
six months, 12 months or longer. Then you
multiply the monthly revenue you expect from
that customer and you get the LTV.
According to a VC David Skok, a viable LTV is 3
times your CAC.
3. Retention
Retention basically means how many days your

users keep on using your app after theyve
opened it for the first time.
Around 90% of apps downloaded are either
used just once or deleted altogether. Many
entrepreneurs get obsessed with acquisition,
however retention is often the most critical
metric you should measure your business by.
7. Revenue
4. Churn
Churn, or attrition, is another really important
metric you should keep your eye on. This is a
measure of how many customers stop paying
you for your product.
In SaaS a 50% reduction in churn can result in
almost a 300% increase in the total revenue
you get per customer.
8. Referral / Virality
This is one of the most important metrics to

pay attention to because its all about
profitability.
To calculate your referral rate just figure out the

percentage of users who come from existing
customers.
In other words, are you making money?
As you might expect, the higher your referral

rate, the lower your CAC is going to be and the
more profitable your company will be.
The net income, aka bottom line (or burn rate if

negative), is the revenue minus all the costs
incurred.
User Lifecycle / Startup Metrics
Retention / Churn
Acquisition (CAC, Activation)
Revenue
Engagement / Habitual
Dependance
Referral / Virality
User Retention and Why it Matters

The internet has evolved in the past decade. Websites are no longer static, they are dynamic. The concept of traffic and pageviews is dying. This is far more pervasive within applications
we use on our mobile smart phones - 80 to 90 percent of all downloaded apps are used once and then eventually deleted by users.
The most important metric today is retention. It tells you how often a customer comes back and uses your product again. Retention is an objective way to measure how valuable users find
your product so you can improve it if its not valuable enough. The best venture capital firms in Silicon Valley are beginning to expect this metric. Companies are starting to include this
metric in their pitch decks to provide transparency into whether they can actually get a high percentage of their 100,000 newly signed up users per day to come back weeks later. The truth
is, if less than 10% of people come back, then people dont find the product valuable.
Why Retention Matters?

1. If your retention is low, then all of the ingenious growth hacks that you apply to your
product are basically meaningless. Your members will leave your product at the 11th
hour (the very end of your funnel).
How To Calculate Your Retention Rates?

Customer Retention Rate = ((CE-CN)/CS)) X 100
CE = number of customers at the end of the period
CN = number of new customers acquired during the period
CS = number of customers at the start of the period
2. By the time someone has become an activated member, theyve shown themselves to be
extremely interested in your product. They are the most qualified people you have to
work with. If you dont focus on retaining them then you are neglecting the most high
quality leads that you have.
3. Increasing your retention by 20% is the same as increasing your overall traffic by 20%. A
20% increase in traffic might cost more in time and tangible resources than increasing
retention by 20%.
4. An increase in retention increases the lifetime value of the customer (LTV). This opens up
the potential to try a number of acquisition methods at the top of the funnel that might
not have been possible before.
User Retention on Android and iOS Devices
100
100%
75
5. People that have been retained for long periods of time are more likely to evangelize for
your product. If your product is built into their weekly routine then they are going to talk
to their friends about it, take it into the workplace, and generally be an advocate for you.
50
6. Losing customers is expensive. For example Neil Patel of Kissmetrics reports that is costs
him 6 to 7 times more to acquire a new customer than it does to keep a current client.
Bear in mind he is considered one of the best in user acquisition.
25
0
24%
14%
April
7%
9
4%
12
Months Since Acquisition

Source: Flurry Analytics, Apptentive
2. Retention Strategies
Make Them Love It. Steve Jobs
Customer Support
Great customer support can be the difference between a life long customer and someone who spreads the news of how horrible you are. Many entrepreneurs believe that if they have a
great product or service, customer retention will naturally follow. However this is only a part of the story - customers dont owe you their loyalty you have to earn it.
From choosing the correct support channel, to using online resources to get out of the way, to empowering teams to keep customer happiness a priority. Understanding how to properly
conduct online support is paramount to creating an amazing customer experience.
Why is it Important?
A 5% increase in customer retention can increase profits by 25% to 125%
The probability of selling to an existing customer is 60 70%. The probability of selling to

a new prospect is 5-20%
$83 billion is the cost of poor customer service in the US
A dissatisfied customer will tell between 9-15 people about their experience. Around
13% of dissatisfied customers tell more than 20 people
68% of customers leave because they think that you do not care about them
What Your Customers Care About?

1. The time it takes you to completely resolve the issue
2. How well you understand their specific problem
3. How much you care whether their problem is solved
4. Whether you solve the problem in the most convenient way for them
5. Your expertise
4 Steps To Building Your Customer Support

1. Choose an appropriate communication channel: Your interaction with the user has to be
effective. Choosing the means to talk with them will have an impact on the effectiveness
of the entire support process. Your options include:
Email: A great option if you want to stay productive and manage your time, use initial
auto response to assure customers of time-frame.
Live chat: Great for early days if your workflow allows it.
Phone support: This is where most critical problems are solved. Recommended for
SaaS.
Social media: Most notably Twitter, although you will likely use it as an additional
support since people dont address serious matters via social networks.
2. Choose a support platform, according to the communication channel: Zendesk works
great with email, Tweetdeck with twitter and Olark for livechat.
3. Dev. support to support your team: Bugs will happen when a product is iterating quickly.
When they do, customers will ask questions your Support Team cannot answer on their
own. To enable fast communication between the teams many companies use HipChat for
instant messaging.
4. Scale Intelligently: As your customer or user base grows, so will your support requests.
You can be certain they wont all occur within your regular support hours. If you cant
afford to hire a team, you may involve some of your employees and shift responsibilities.
6. How polite you are
Surprise Them
The element of surprise is a powerful thing. According to
psychologist Norbert Schwartz, the secret ingredient of
making a difference is not in the cost but in the surprise: An
act of kindness leaves a bigger impact when it is
unexpected.
Look for opportunitieswhether out of the blue or
automatedto surprise customers with a follow-up freebie
or some sort of treat that is otherwise unmentioned on your
site. This link offers some great tips for inspiration.
Create a Good FAQ page

Sometimes good customer support can be as simple as
having the answer your customers are looking for already
answered.
A FAQ (Frequently Asked Questions) page is effective (and
a time saver) because your customers can get an immediate
answer without having to contact you and wait for a reply.
Plus, a comprehensive FAQ page will also have a positive
impact on your conversion rates.
Build Reputation (and show it off)

If a customer believes you offer good customer service, they
assume theyll be taken care of properlyeven before they
contact you. This leads to more positive interactions
between you and your customers and increases your sales
conversion.
Many startups use testimonials from past customers that
highlight their great customer support. Display these
testimonials where other customers will see them
especially on your support page.
Respond Quickly
Getting back to customers as quickly as possible is
imperative. You dont need an immediate solution but you
do need to acknowledge that you are working on it.
Research shows that customer service experiences are

judged more on the timeliness of the interaction than on
the final outcome (69 percent attributed their good
customer service experience to quick resolution of their
problem).
Treat Customers Like Friends
Go Extra Mile
When youre dealing with an upset or angry customer, its a

good idea to take a deep breath and imagine youre writing
back to a good friend. Why? Because we tend to be nicer to
people weve met in person.
When Wofoo started they sent hand written notes to their

first 100 customers. Jawbone did the same thing with their
UP customers which resulted into multiple tweets,
thousands of retweets and free PR.
Try not to argue or confront the customer. This will often

lead to a larger, more difficult situation to manage. Plus, an
angry customer is more likely to tell their friends about the
bad service.
Warby Parker decided to leverage videos to help customers

resolve their issues. Employees got on camera to nuke
questions on prescriptions, frames, and even shipping times
for glasses. Their customers were so blown away by the
videos that they started spreading the word about them.
Documentation & Knowledge Base

If your product needs documentation then providing it in
the best possible way is actually a service to your
community. Besides, if people dont have the needed
documentation to install or use your product then youre
not going to retain them.
Many companies also offer a knowledge base, which is
more detailed than a FAQ page. A knowledge base often
consists of short, informative articles that answer your
customers most common questions and objections. Read
How To Write Killer Knowledge Base.
Take a Top-Down Approach

Apple impressed many customers because Steve Jobs
himself was willing to respond to customer emails, even in
the late days. Make sure your leaders practice what they
preach, and get involved yourself too, especially if you are
in your early stage.
The key to delivering Whole Company Support is to create
a focus on customers that permeates all levels of your
business, from your management team down to the
frontline players who deal directly with customers.
Get Feedback
Getting feedback from customers allows you to get a
handle on what matters to them and whether or not you are
delivering it. But you cannot simply rely on unsolicited
emails and surveys to really get to know your customers.
Reach out to your best customers, conduct user tests, and
create follow-up emails that ask for candid responses.
One great tool to consider is NiceReply, although most help
desk support have the features built in.
Community Building
As Ross Dawson, worldwide expert in crowdsourcing, says: Most of the startups forget to harness the power of the crowd. Building a community is bigger than a product alone. Think of
communities built around World of Warcraft or Hacker News started by Y Combinator. It goes beyond just getting fans on your Facebook page, followers on your Twitter account or
subscribers to your blog - that is just building an audience.
A community is something that will continue without you, without your content or without your incentives. Its a movement around a problem, idea or activity. And people who feel like they
belong to something generally stay longer than people who merely subscribe.
Lean Community Development

Community management is an increasingly important role inside companies that seek to
build and maintain customer networks. It is also a crucial science that every entrepreneur
looking to build one needs to master. But how do you start one? Here are some steps
inspired by lean community development introduced by entrepreneur Thomas Pichon:
Make a plan: Take a sheet of paper and answer the questions in the canvas below in less
than 12 words. At this point you cant be 100% sure your guesses are right.
Start community building: At that point, you should have updated your canvas at least one
time. You can now use your deeper understanding and start writing your blog, engaging
with users and building the platform for your community. More tips on the next page.
Run Interviews
Start Community Development
WHAT?
1. Build your list: Find people in your personal network

who are similar to your personas. Think about who well
represents your personas.
Have conversations with people from your

target segment
What will be the purpose of your community?

What is the problem people have?
What do people not do correctly?
Who is going to join your tribe?

Who has the problem you want to solve?
WHERE?
Validate your assumptions: Reach out to your potential customers and community
members and validate your assumptions. Use this list of 95 ways to find your customers.
Create Community Canvas
WHO?
Where do these people hang out today?

Where can you go to reach them?
2. Schedule a call or a face-to-face interview: Send a

message to people in your list. Explain that you would
like to have a conversation with them about a project
you would like to build.
3. Run the interview:
Ask open questions to the interviewee
Listen as much as you can and take notes
Update your canvas
Write a blog, share

advice, tips etc.
Analyze and discover

where they struggle
Community Building Tips:

Leverage Connections at Your Disposal
Start with friends. Ask them to be a part of your community
and to help you grow it.
Jason Keath, CEO of Social Fresh, points out that email lists
are often overlooked as a chance to ask your existing
community to follow you elsewhere. Social Fresh found
early success by building partnerships with conferences and
leveraging their audiences, so definitely think about any
partners or deals you can make to help build your base.
Make Your Product Social
Learn Their Names
If you want people to share, make it really easy on them.

When they sign up, give them a checkbox to sign up for
your newsletter. Ask them to follow you on Twitter and like
you on Facebook as part of your on boarding process.
Suggest opportunities for them to tweet or share with their
friends.
Here is your chance to humanize your company and convert

users into friends. Take them to coffee. Make sure they have
your email and phone number. Share what youre working
on. Keep them updated on your progress. On a personal
level, find out how your product solves their needs. Your
products early users and beta testers will be your most
valuable community members until you reach product/
market fit.
Connect Your Community Members
Look For Advocates, Not Just Audience
Build Relationships
Figure out who and where your users are, and go hang out
there. Meetups, forums, social media, classes, you name it.
Go there, contribute, and then start nudging the
conversation in your direction. But most importantly, listen.
Find out what motivates folks in your target market and
learn where their pain points lie.
Nothing, not even scale, replaces real relationships.
By focusing on building a place where community members

talk to each other, not just you, youre on the way to
building a scalable community that can sustain itself. Make
sure your community finds value from their involvement
focus on building that value and your community will not
only stick around, but become a huge supporter of your
company.
Get Product Feedback

Once your product is ready to use, find out what your users
think of it. Was this the solution they expected? Is your
product easy to use? This particular step is a smart way for
your UX designer and/or product manager (if you have
one!) to observe how users interact with your service this
is important for step five!
Build a Support Resource

Which questions have you heard over and over again?
These are your FAQs.
Set these up in an easy to use platform that can be found on
your website or app.
Getting fifty more followers (or even 5,000) doesnt mean

much in itself. Think about building a quality follower and
fan base that is engaging with and sharing your content.
According to a 2009 Nielsen study, 90% of consumers trust
peer recommendations, while only 33% trust online ads.
Your goal should be to turn your user base into advocates
who help spread the word about your startup in a way you
could never do on your own.
Helpful Links:
The Collaborative Startup: 6 Best Platforms To Host Your
Startup Community
Quora: How to get first 50 members of your community
Customer Dev Labs: How I interview Customers
10
Onboarding
Most of the users are lost in the first few days - 80 to 90 percent of all downloaded apps are used once and then eventually deleted by users. One of the main reasons behind this is that it
simply takes too long for users to reach the Aha moment, when they start understanding the value proposition and get engaged. One of the best ways to overcome this is to simplify and
speed up the user onboarding process.
Below is a brief outline of what you can do in order to simplify your onboarding process, but before you start, ask yourself the following questions:
Do you know what the Aha moment for your product is?
What are the specific actions your user has to take in order to get there?
If it currently takes two days to get someone to the Aha moment...
How can you speed it up?
Is there a way to give your users the Aha moment before signing up?
Are there features which dont lead people to an Aha moment, thereby cluttering your
product and lowering the chances they will ever get there?
1. Show Them How It Works
2. Offer Incentives
Create a brief message that welcomes users

when they first launch your app and show
them how to use it with just a few simple
steps that guide them towards the must
have moment.
Providing users with an incentive to engage

with your app can often be quite helpful in
motivating them towards that must have
moment. For retail apps, this could be
exclusive discounts that drive users towards
their first in-app purchase or for publishing
apps, it could be providing a free trial of
your magazine etc.
Another way to increase the success of

onboarding is to reduce friction in account
creation. If you ask too much of new users,
they may not complete the process.
One way to minimize the sign-up process is

to use one-click social-sign up.
A great solution is requesting only the most

necessary information during registration,
while leaving the rest for future sessions,
once users are hooked.
Top sites like Quora, Pinterest and Vimeo

offer Social Login as an option alongside the
option to create an account with an email
and password.
6. Generate Early Value
7. Gamification
Incorporating images or better yet, video

tutorials are also great ways to demonstrate
the value of your app and some key steps to
getting started.
5. Clear Path To Completion

Offering users a structured set of steps to
walk through helps reduce abandonment.
Psychologically speaking, this makes a lot of
sense. If new users know how many steps
they must complete, theyre more likely to
complete the process.
For a new user to become an active one,

they must experience value from the
application and the sooner, the better.
Churn rate is proportional to the distance
between sign-up and value.
Twitter does a great job with this, it requires
you to follow at least 10 other users before
you can begin using the product on your
own.
3. Progressive Sign-up
Gamification is the the art of implementing

game feature in order to motivate user
behaviour.
Game features engage our need to be
successful and accomplish something. At
minimum it can be a well done message or
some kind of virtual currency reward.
4. Social Sign-up
In addition to speed it offers the ability to

access and connect to the users contacts.
8. Pop-up tutorial
An email management extension
ActiveInbox is a good example. As you
begin to perform actions in your inbox, a
popup explanation and arrow helps you to
learn how to use it as you go.
Dropbox implemented the same mechanics
in its early days too.
11
Gamification
Gamification is the application of game thinking and game mechanics including points, badges, or similar incentives in non-game contexts in order to affect behavior. Often,
businesses use gamification to increase sales, user engagement, return on investment, data quality, speed of process, and improve learning.
When people hear gamification, they envision games created for a business purpose. But gamification is not about creating something new. It is about amplifying the effect of an existing,
core experience by applying the motivational techniques that make games so engaging. When you increase high-value interactions with customers, you drive more sales, stronger
collaboration, better ROI, deeper loyalty, higher customer satisfaction and more.
Design Product To Stimulate Habitual Behaviour
Game Mechanics
What has Facebook, Twitter, Pinterest and Zynga in common? All of them can be described
as addictive, but aside from that entrepreneur and psychologist Nir Eyal identified 4
elements that motivate the habit forming behaviour the users of the highly successful
products display. Those 4 elements are:
Eyal divides products in 2 categories: Painkillers and Vitamins. Painkiller is a product that
solves a problem and you use it whether you are engaged or not e.g. antivirus. Vitamin is a
product that simply improves your life in some way e.g. email, linkedin or twitter.
Trigger: The trigger is what stimulates users to take action. There are 2 types of triggers:
external and internal. An internal trigger is for example hunger or boredom. Hunger
triggers eating and boredom triggers Facebook browsing. An external trigger is what
comes from your environment. For example a picture of a tasty sandwich when youre
passing Subway or a Facebook notification.
Action: Action is simply what users do to start using a product: login to gmail, tap the
Facebook app and start browsing etc. However whether users take action or not depends
on their current motivation and ability. The best product designers aim to simplify this
process to a degree it becomes ridiculously easy.
Variable Reward: Every time we expect a reward from our action our brain experiences a
dopamine high. Dopamine is a hormone among other things responsible for cravings.
Once we learn there is a reward the trigger stimulates stronger motivation. The trick is - it
has to be variable. Variability multiplies this process and even stimulates a gambling-like
behaviour.
The habit forming elements or The Hook Canvas as Eyal calls it work best with vitamins.
However there are multiple ways to add game mechanics regardless of whether your
product is a painkiller or vitamin. Here are some ideas:
Providing rewards for players who accomplish specific tasks. Rewards can include points,
badges, levels, discounts, gift cards, free shipping and more.
Progress bars are a popular tool to give people a clear picture of beginning, middle, and
end. This encourages people to keep working toward completing a task. Progress bars are
often used to help participants complete an online survey.
Virtual currency is often used in games for mobile devices, Facebook, and otherwise. This
form of gamification is always used in online gambling (the non-real currency type) to give
players the feeling of real action.
Competition is quickly becoming a clever way to use gamification to encourage more

participation. Making rewards, points, badges and levels visible to other players, or
providing a leader board, brings out that competitive nature in all of us.
Investment: When people are invested they become more likely to stay. You are less likely
to cancel your social account after you spent hours pinning photos or adding friends.
See Pages 14-15 for examples.
12
Case Studies: Startups Using Game Mechanics

Nike+
Dropbox
Thispopular fitness app enables users to log

theirphysical activityand rewardsthem with points they
call NikeFuel. It challenges them toreach their fitness
goals andbrings out their competitive natureby
allowing the user to share their accomplishments with
friends.The more NikeFuel they earn, the moreawards,
trophies andsurprise gifts they earn.
Dropbox, has gamified the product adoption process of

their users. Share with a friend, get a reward. Use
Dropbox to share a file, get a reward. The reward is
always the same, but it is valuable to their users.
Foursquare
Duolingo
Quora
To foursquare it's important that users share their

location with friends on a regular basis. By having
people earn badges when they check-in on special
places or with a certain frequency, users are motivated to
keep using foursquare on a regular basis.
Each lesson you take, each translation you make, each

skill you strengthen gives you points toward your
Duolingo skill level, which levels up as you progress. You
are given a leaderboard so you can see exactly where
your friends skill levels are, adding competition to the
platform. There is an open discussion board, profile Wall
to interact with friends and tons of translations to choose
from when practicing your skills on real world situations.
Quora introduced a credit system to motivate users to

answer questions more often as well as improve their
quality of answers - which was one of the main reasons
why people came back. Whenever you get an upvote
you get credits, if you share answer and it gets followers
you get credits too. These can be spent on asking
people for answers or promoting your questions.
This also creates a great habit loop. You are triggered at

the point of entering a new place, you get a badge
(reward) and share it (investment).
Dropbox also uses their product (cloud storage) as a

virtual currency. To reward customers, Dropbox provides
more space. Users happily share their love of Dropbox
with their networks, because doing so provides them
something they really desire more space to use.
Codecademy
Codecademy is one of the first programming tutorial
sites to make learning how to code easy, fun and
addictive. Their on-boarding strategy alone is brilliant:
the first thing you see on the home page is a big window
with a command line, prompting you to start coding. The
effect is multiplied by milestones you can achieve and
badges you earn. Read more
Starbucks App
Starbucks app is nice and simple. Themore coffee you
buy, the more rewards you get andthe more you fill up
your cup. This visual aspect of reaching a goal by filling
up the cup motivates users to accomplish the highest
level of earning.
Linkedin
A while back, LinkedIn started highlighting how
complete your profile was by using percentages.
Humans like to get 100%, so showing a user his or her
profile only at 80% was an impetus to complete the
steps.
With a more complete profile you feel more invested
and your experience becomes more valuable giving you
many reasons to come back (e.g. job offers, new
contacts etc.)
In addition to this, Quora rewards top users with a status

top writer and a t-shirt.
Helpful Links:
ReadWriteWeb: 10 Tips for Adding Game Mechanics to a
Non-Gaming Service
Forbes: 5 Gamification Rules From The Grandfather of
Gamification
Nir Eyal: The Psychology of How Products Engage Us
13
The Hook Canvas

Trigger
Trigger (internal): you might be bored, curious,

lonely, or restless
Action
Trigger (external): you see a notification from

Facebook on your phone
Habit forming apps are easy to open and start using

without too much friction. If you look at social
networking apps such as Twitter, you open and scroll,
thats it.
Are your triggers reaching people at the right time?

Are they frequent enough?
Is your design simple enough to make taking the

action easy?
The best investments lead to more triggers. For

example, you post a message on Facebook and you
expect likes. Or an answer on Quora and you expect
comments. New notifications then trigger you back
to the app.
The best rewards leave people wanting more. Take

Facebook for example, there is alway new content,
likes, friends and messages triggering users to come
back.
Does your user invest a bit of work into the product,

storing value to improve the experience with use
while loading the next set of triggers?
Investment
Are your rewards variable? Does the reward satisfy

the users need while leaving them wanting more?
Variable Reward
14
Case Studies: Habit Forming Products

Quora
Internal Trigger: Boredom, Information hunt
Facebook
Quizup (Fastest-ever growing iPhone game)
Internal Trigger: Feeling lonely
Internal Trigger: Socialising, entertainment
External Trigger: Notifications, messages etc.
External Trigger: Facebook and Twitter shares
Action: Browse, Scroll, Read
Action: Login, scroll, browse, share
Action: Take a quiz
Variable reward: Interesting answers, feeling of selfdevelopment, mastery
Variable reward: Social proof, feeling social
Variable reward: Compete with friends, win or lose
Investment: Writing answers, comments, Quora credits,

etc. These lead to the next triggers, which are notficiations
of comments, upvotes, sharing of the answers etc.
Investment: Share photos, build albums, build friends list/

network etc. Likes and comments on shared photos lead to
the next triggers.
Investment: Submit your own questions, grow your score
External Trigger: Best of Quora weekly newsletter,

notifications, tweets from users
Netflix
Instagram
Spotify
Internal Trigger: Boredom, seeking entertainment
Internal Trigger: Fear of losing the moment
Internal Trigger: Music (feeling sad, or happy etc)
External Trigger: Ads, newsletter
External Trigger: Facebook, Twitter cross-posts
External Trigger: Facebook, ads
Action: Watch
Action: Tap, take a photo
Action: Play
Variable reward: Movies, shows, new content. Netflix

recently introduced the browse endlessly plan making it
more addictive with infinite reward
Variable reward: Social proof and interaction
Variable reward: Infinite number of songs to listen to, new

albums, new singles
Investment: Build your playlists, queue-up your shows,

movies etc.
Investment: Building your own photo collection, collection

of moments in life. Shared photos lead to the next triggers
such as friends comments, likes etc.
Investment: Build your playlists, share them etc.
15
Emails and Notifications

Retention is the place where huge ROIs can be made on time and effort a simple automated email campaign for inactive users might bring back 20% of your inactive users. The same
results for acquistion would require a significant increase in your advertising spend. Email is simply a very useful tactic for retaining users, and those who ignore this are at an instant
disadvantage. There are a number of different kinds of emails that your product should send, and they each have their own purpose. Make sure you find a balance, there is a level of
frequency, which if crossed will turn your emails into spam.
Onboarding and Drip Campaign
Alerts and Notifications
A drip campaign is when you send people prewritten emails

at preselected intervals. A new member might get an email
on day 1, day 3, day 7, day 14, and day 21. You can use a
drip campaign to introduce them to your product, share
testimonials, give them case studies or other inspirational
reasons to use your product, and many other things.
If you are building a mobile app then in addition to email

you have another avenue available to get people back into
your product. You can also use alerts and notifications to
help retain users. Are you currently using push notifications
within your mobile app? Are you currently using badges to
alert people to new features, or new updates, or anything
else?
Providing users an option to receive a weekly digest email

is an awesome way to pull them back to your app.
Make sure you dont spam users, and make it easy to

unsubscribe. Too many notifications can be damaging to
your retention rates.
Another great way is to send the best bits newsletter like

Quora or Pinterest does.
A drip campaign burns your product into peoples minds

when they are most impressionable, right after theyve
signed up. Every email sent is a chance to bring them back
into your product and retain them.
Weekly Digest Emails
Sending a weekly email containing metrics such as amount

of times their profile was viewed this week, responses to
their posts, their total invoicing amount, average ticket
response times, campaign performance etc. can work great
since people love stats about themselves.
Product Update Newsletters
Loyalty Programmes
Automated Re-Engagement Emails
Divide your list into 3 segments Active, inactive, and

prospects. Prospects are users in your list, perhaps through
a blog, but not yet signed up. Your active and inactive users
will need to be told about new features in a different way
for active users, theyre already engaged and have more
investment into the product, so you can give them the
details and really dig into the feature. For inactive users,
youll want to keep it brief and stick to the topline benefits
of the feature why does this feature significantly change
the app from before? Why is it worth coming back and
checking it out again?
A loyalty scheme can be as simple as awarding a number of

points (or any virtual currency) for certain actions.
Completing a level. Creating a new post. Adding a
comment. Uploading a design. Voting on an idea.
Similarto automated onboarding emails, you should also

setup automated behaviour emails when a user has been
inactive. These should be a series of emails, allowing you to
use different copy and tactics depending on how long the
user has been inactive.
Whatever the actions are within your app, you can award
points for them.
There are lots of loyalty program startups, but for most early
startups you should build this into your core product in a
simple way, and worry about using one of the bigger
programs later when the costs make more sense.
16
More Retention Strategies

Exit Interviews
Re-engagement Strategies
You are twice as likely to close business with a lost customer

than you are with a new prospect. With such rates like that,
you should be treating these people like highly valuable
leads.
When you identify previously active customers who are

slipping, a well-timed personal email can help to re-engage
them. The best case is that you recover a customer; the
worst case is often that you learn why your users leave.
Either scenario leaves you in a better position than doing
nothing and not investigating at all.
When people cancel your service, or go long periods of

time being inactive, or generally show themselves to not be
retained, then you have an opportunity to learn from them.
If you want to ask people to fill out a full survey at this point
you can try it, but think about the situation first. Theyve
already walked away from you. They probably wont give
you 10 more minutes of their time. They might shoot you
back a quick response if you send them a short, one
sentence email. Be wise about how much you ask for at this
point.
An exit interview like this can also be a chance to bring them
back into your product. You could offer them an exclusive
discount. You could give them the option of choosing a less
expensive package that isnt advertised during signup.
Youve already lost them, so you might as well try something
to bring them back.
Doing exit interviews can help you identify patterns around
what went wrong in the first place and get clues as to what
to offer them to come back.
Some guidelines for re-engagement emails:

Be Personal: Dont auto-mail a customer who has several
open support issues to remind them to login and dont
begin your mail with Dear Customer. Such activities do
more harm than good. Introduce yourself in the email, and
make it clear that youre a real person who really wants to
hear what they have to say about your application.
User Experience
The job of UX designers is to make the users' experience
more efficient, in turn increasing their happiness and, by
extension, your retention.
Good UX increases retention and referral rates, which in
turn increase LTV.
To get started look at the following articles:
Your 5-Minute Guide To UX From Squarespace and
MailChimp
10 Useful Techniques To Improve Your User Interface
Designs
Be Interesting: There are often some features that will bring

customers back, or prevent them from switching. By offering
churning customers a glimpse of whats coming down the
line, you can excite them about future releases. Things that
inspire people to stick around are usually features which:
save time (e.g. better importing), increase efficiency (e.g.
integrating with 3rd parties), or offer additional value for no
extra work (e.g. weekly reports).
Be Visual: If you have new features or even UI refreshes
coming down the line, screenshots can be particularly
interesting for long standing users.
Be Respectful: Some amount of churn is natural. Businesses
come and go, as does demand for your product. When a
customer decides to leave, make sure they leave on good
terms. If they have legitimate problems with your product,
acknowledge them.
17
3. How To Measure It
Measure to learn. Measure to fix.Stijn Debrouwere
Measuring Retention Rates And Other Metrics

The customer retention rate can be defined as a metric that indicates the proportion of customers that have stayed with you for a while. The retention rate can be calculated annually,
monthly or weekly.
Bymeasuring this metric, you can benchmark your performance and identify areas where you canincrease customer retention.
Benchmarking Retention Rates
Related Metrics To Measure
Like a lot of metrics, you need to remember it differs per industry. For some industries, 85%
is great, for others its quite low. So you need to realize it is relative to your industry and
market.
Cost to Acquire Customers (CAC). Also known as customer acquisition cost, this measures
the cost of landing a customer. In simple terms, add up the cost of marketing and sales
including salaries and overheadand divide by the number of customers you land during a
specific time frame.
For comparison an analytics Mixpanel released a study where they pooled data from all their
customers and divided it into categories like messaging, social, e-commerce, and education
etc. The report looks at data from August, September, and October 2013.
60 %
Lifetime Value of a Customer (LTV). Unless your business is truly one-off, some percentage
of customers will become repeat customers. The more repeat customers you have, and the
more those customers spend, the higher CAC you can afford. (Some business models are
built on breaking even on the customers first purchase; future purchases will be profitable
since the CAC is at or near zero.)
Churn rate. This is basically the opposite of retention - how many users quit using your
product. Churn rate is a solid indicator of rising CAC and lower LTV. In fact, all three are
great leading indicators of problemsor successesto come, both in other metrics and for
your business overall.
45 %
Revenue percentages. Very few businesses only have one source of revenue. Most have
multiple sources, and changes in the contribution percentage each makes can indicate
problems are ahead. Changes in revenue percentages can often signal not only changes in
customer spending habits, but also broader trends in your industry and market.
30 %
15 %
0%
Media
Education
E-commerce
Music
Photo/Video
Social
Games
Messaging
April
Helpful Links:
Eric Ries: Vanity vs. Actionable Metrics
19
Cohort Analysis
Retention can be measured qualitatively by talking and checking in with your customers reguarly so youll know what their main questions and issues are, and when they occur.
Retention can also be quantified, giving you hard data on how much money youre losing. Typically this is done using a cohort analysis.
A Cohort Analysis is a technique borrowed from medicine to see how variables change over in different groups with different starting conditions.
How It Works?
Before You Start
Consider an ecommerce product that has a couple of key customer lifecycle events:
registering for the product, signing up for the free trial, using the product, and becoming a
paying customer. We can create a simple report that shows these metrics for subsequent
cohorts (groups) over time. Lets say we create a weekly report. For each week, we then
report on what percentage of customers who registered in that week subsequently went on
to take each lifecycle action. If these numbers are holding steady from cohort to cohort, then
we get clear feedback that nothing significant is changing. If one suddenly shifts up or
down, we get a rapid signal to investigate.
Retention vs. Engagement: First off, theres an important distinction between engagement
versus retention, which some people often track in one bucket. In general the retention is
simply the act of getting users BACK to revisit, regardless of their actual activity on the
site. Contrast this with engagement, which measures how much time they spend with the
product, how many features they interact with, etc.
Retention vs. Acquisition: Secondly, theres the important issue of how to disambiguate
newly acquired users from retained users. The problem with a traffic graph thats going
up-and-to-the-right is that its not clear whats really happening is the site bringing in lots
of new users? Or is there a bunch of dedicated users that are extending their
engagement?
Key Focus: When creating your cohort analysis, you should focus on the following 3
questions:
To start tracking by using cohort analysis, you can use either spreadsheet or one of the
analytics tools like Mixpanel or Kissmetrics.
1. How is our retention rate overall?

2. Where do we lose customers?
3. Is the rate at which we lose customers getting better or worse?
Tools:
Helpful Links:
Cohort Analysis Excel Sheet
Tom Tunguz: Interpreting Cohort Data
Mixpanel
Growing Growth: Perform Your Own Cohort Analysis
Kissmetrics
20
Simple Cohort Analysis

% still active in following months
Signed Up
Jan
100%
24%
23%
21%
20%
Feb
100%
26%
24%
22%
20%
Mar
100%
29%
25%
23%
21%
April
100%
32%
26%
23%
21%
May
100%
33%
33%
28%
24%
This means 24% of users who signed up in February were still active in their third month (March)
24%
Full Cohort Analysis
% still active in following months

Signed Up
10
11
Jan
100%
24%
23%
21%
20%
18%
18%
17%
17%
17%
17%
Feb
100%
26%
24%
22%
20%
18%
17%
16%
16%
16%
Mar
100%
29%
25%
23%
21%
18%
18%
17%
17%
April
100%
32%
26%
23%
21%
17%
15%
16%
May
100%
33%
33%
28%
24%
22%
18%
June
100%
34%
28%
24%
23%
19%
July
100%
35%
31%
27%
23%
August
100%
40%
35%
32%
Sept.
100%
41%
38%
Oct.
100%
48%
Nov.
100%
12
Dec.
21
References
Key Startup Metrics:

Kissmetrics: 9 Metrics to Help You Make Wise Decisions About Your Start-Up
Lifecycle Chart:
Applift: User Lifecycle: Why the Big Picture Matters
Why Retention Matters:
Quicksprout: The Definitive Guide To Growth Hacking
Mixpanel: BS metrics
Digital Trends: Are You A Rarity....
Moz: Mobile App Marketing, App Retention, and Building Real Customer Relationships
Customer Support:
Mineful: 10 Customer Retention Facts
SansMagic: Building Your Customer Support Service from Scratch: Where to Start?
Launchrock: 5 Keys To Outstanding Lean Customer Support
Customer Support Tips:
CrazyEgg: 5 Customer Support Tips For Better Conversions
Tech In Asia: 5 Customer Service Tips for Startups
Gamification Case Studies:

Sensei Marketing: The Gamification of Experience
Get More Engagement: Top 8 Mobile Apps Using Gamification
Onboarding:
Converser: Using Onboarding to Improve Mobile App User Retention
Intercom: Onboarding New Users
Emails and Notification
Trak.io: 6 Easy Retention Hacks For Startups
Other Strategies:
Intercom: Churn, Retention, Re-engagement
] How To Measure It:

Jeff Haden: 4 Business Metrics You Cant Afford to Ignore
Cohort Analysis:
Andrew Chen: How to measure if users love your product using cohorts and revisit rates
Eric Ries: Vanity Metrics vs. Actionable Metrics
Community Building:
T Pichon: The 3 best advice to boost your community development
Community Building Tips:
Mashable: 10 Tips for Building a Strong Online Community Around Your Startup
Fullstart: How to build your startups community: Pre-launch
Gamification:
Nir Eyal: Intro To Desire Engine
Shopify: How to Use Gamification to Increase Sales
22
For more information about this whitepaper contact Appster
23
Appster is the fastest growing web & mobile app development company in Australia serving clients international from Australia to
North America and Europe. Our focus is on business ROI first whilst delivering outstanding functionality and design. This is why weve
had dozens of top 100 apps, developed multi-million dollar startups and worked with everyone from BRW Young rich members to
Billion dollar company founders. We develop apps using the SCRUM framework, leading to an AGILE and LEAN development
experience. We specialise in working with disruptive game changer ideas and large enterprises looking to innovate their business
models with mobile-first technology.

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Habitual DependanceTM & User Retention

About Appster | Facebook | LinkedIn | Google Plus | Contact Us

User Retention and Why It Matters

The Hooked Model

Email and Notifications

Measuring Retention Rates

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About Appster | Facebook | LinkedIn | Google Plus | Contact Us

1. The Key Metric

Key Startup Metrics

1. Customer Acquisition Cost (CAC)

To calculate your CAC, divide your sales and

Activation is a measurement of the conversion

High CAC is considered a no. 1 startup killer.

A low activation rate usually means that your

6. Life Time Value (LTV)

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Retention basically means how many days your

This is one of the most important metrics to

To calculate your referral rate just figure out the

In other words, are you making money?

As you might expect, the higher your referral

The net income, aka bottom line (or burn rate if

User Lifecycle / Startup Metrics

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User Retention and Why it Matters

Why Retention Matters?

How To Calculate Your Retention Rates?

User Retention on Android and iOS Devices

Months Since Acquisition

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A 5% increase in customer retention can increase profits by 25% to 125%

The probability of selling to an existing customer is 60 70%. The probability of selling to

$83 billion is the cost of poor customer service in the US

What Your Customers Care About?

4 Steps To Building Your Customer Support

6. How polite you are

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Create a Good FAQ page

Build Reputation (and show it off)

Research shows that customer service experiences are

Treat Customers Like Friends

When youre dealing with an upset or angry customer, its a

When Wofoo started they sent hand written notes to their

Try not to argue or confront the customer. This will often

Warby Parker decided to leverage videos to help customers

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Documentation & Knowledge Base

Take a Top-Down Approach

Lean Community Development

Start Community Development

1. Build your list: Find people in your personal network

Have conversations with people from your

What will be the purpose of your community?

Who is going to join your tribe?

Create Community Canvas

Where do these people hang out today?

2. Schedule a call or a face-to-face interview: Send a

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Write a blog, share

Analyze and discover

Community Building Tips:

Make Your Product Social

Learn Their Names