Product-led Retention: The Ultimate Guide in 2024

“Retention is gold.” Yes it is. Ask anyone who has been in any business long enough and they would agree. The numbers agree as well: acquiring a new customer is 5x-25x more expensive than retaining an existing one. And an unhealthy churn rate can be fatal for a business.

The good thing is that this is never random, but very much in your control  — there are legitimate patterns and reasons that dictate whether your users stay with you or churn.

That’s what we will do in this blog. We will do a breakdown of good retention tactics, tackle churn, and leave you with more than enough knowledge to fix your churn.

The most common way of encouraging retention used to be customer loyalty programs and feedback surveys. But today, with saturated attention and channels, things are different. The thing that should have your attention today is product-led retention — a strategy that focuses on keeping customers engaged and creating loyalty through the product itself. This often involves user-centric design, customer education, in-app communication, data-driven insights, etc.

Successful product teams have already started spending resources on product-led retention. Let’s dive in now:

Product-led Growth: What Does it Mean?

Product-led growth means giving the product a central role in acquiring, growing, and retaining customers. Product-led companies focus on providing value to customers through an exceptional product experience and unique value proposition. Slack, Dropbox, and Zoom are all examples of companies that have successfully implemented product-led growth strategies.

These product-led companies generally follow a bottom-up approach — one that encourages users to explore the product for free or with minimal barriers. As users experience value, they become inclined to share it with colleagues, ultimately transitioning to a paid plan with expanded licenses and enhanced features. This approach allows the product to sell itself organically. That’s one example.

The intention behind this is to create happy and engaged users who then become the business’s evangelists and help your business get organic growth through customer referrals, repeat purchases, and positive reviews.

In addition to product-led growth, there are two other models that companies follow:

Sales-led growth: You find this motion at companies that design the sales teams to be the primary source of revenue and drive customer acquisition and growth. Everything here is filtered through the lens of “Does this help the reps close more deals?”

Marketing-led growth: You find this motion at companies that spend their resources on advertising, promotions, and branding to drive customer acquisition and growth. These businesses are aggressive with their marketing to appeal to customers and acquire leads.

Typically companies employ one or a combination of the above growth models.

Getting product-led retention right with the right metrics and data

Product-led companies know that their product is their best drive of growth and revenue. You’ll generally find product-led companies be extremely data-driven, backing every product decision with user behavior data. And this makes all the more sense when you have a high DAU (Daily Active Users) and can’t risk making biased assumptions about user preferences.

Some retention insights you can gather using data are:

• What features are most important to customers?
• Where are users encountering issues?
• What parts of the user flow are frustrating for the new cohort?

Key Retention Metrics for Product-led Growth

Product metrics for retention are similar to the ones used in sales and marketing-led environments, but they aren’t the same. Let’s talk about the metrics you might know already with the content of product-led retention:

1. Retention Rate

What: The retention rate is the percentage of users who continue using or paying for your product over a specific period.

Strategic benefit: It measures the ability of a product to retain its customer base and indicates that users find value in your product and stick to it long-term. Calculating your retention rate allows you to identify what’s retaining users and double down on it.

2. Net Revenue Churn

What: Not to be confused with Churn Rate, this metric helps you understand how much money you are losing or gaining from existing customers over a specific period. It considers the revenue lost due to churn and earned from upsells or cross-sells (expansion).

Strategic benefit: Net Revenue Churn identifies lost revenue and highlights opportunities to increase revenue from the current customer base.

3. User Engagement

What: User Engagement measures the activity and interaction users have with your product. It includes actions such as feature usage, logins, and time spent on the platform,

Strategic benefit: This metric provides insights into the depth of user involvement with your digital product.

4. Customer Lifetime Value (CLV)

What: CLV or LTV is the total projected revenue from a customer during the time period they're associated with the company. It helps in assessing the value of retaining customers in the long haul.

Strategic benefit: LTV helps identify valuable customer segments. You can also gain a more thorough understanding of the needs of their most valuable users through this metric. CLV informs design decisions and helps product teams validate their decisions at a business level.

5. Expansion Revenue

What: This metric represents the additional revenue from existing customers through upsells, cross-sells, or add-ons — for instance, revenue generated from adopting other features or services.

Strategic benefit: Expansion revenue is easily one of the most critical levers of product-led retention (and also the most easily achievable). It’s roughly 4X cheaper to upsell to an existing customer than to acquire a new one.

6. Time to Value

What: Time-to-Value is the duration for new users to experience your product’s first “aha moment” or activation event. It reflects the time users need to transition from initial exploration to becoming active and engaged users.

If it takes a long time for users to experience your product’s benefits, most will churn before reaching the activation stage. This affects your retention goals.

Strategic benefit: PMs can leverage TTV to identify areas of friction in the initial customer journey and enhance the onboarding experience.

7. Number of Support Tickets

What: The number of Support Tickets metric is the number of users encountering issues or needing assistance.

Strategic benefit: Monitoring this metric helps identify areas of the product that may require improvement or additional user education. Product-led experiences should be intuitive and anticipatory. Tracking the volume and reasons behind support tickets can help you assess how seamless your product-led experience is. In the end, your goal should be to ensure seamless product experiences.

8. Feature Adoption Rate

What: The feature adoption rate analyzes the value of every product feature for your users. It measures how many of your product’s features are being adopted by the users. Besides, this metric reviews every element individually to understand what’s boosting product stickiness and user engagement.

Strategic benefit: Apart from identifying the most-used and least-used product features, this metric can help you identify gaps in the market for new feature development and reshape your product positioning.

Enabling Product-led Retention with a Product Analytics Tool

All of the above is made possible through product analytics. Tracking in-app events through clickstream data can help product teams with the following:

1. Detailed User Insights

Product analytics helps PMs understand what product elements are being used by the customers, how often, and by whom. They can also get insights into the most common product experience paths that lead to the most critical outcomes.

2. Growth and Experimentation

Product analytics reveals how users interact with your product. By analyzing the most and least used features, you can decide where to invest resources. You can even roll out new features to a subset of users and compare their engagement and satisfaction metrics.

At Quizizz, the team leveraged core user insights to run new product initiatives with stronger conviction. They run deep product dives and plan release cycles based on user adoption trends.

3. Enhance User Experience

Understanding how users navigate your product allows for targeted improvements in the user experience. If users are not using any specific feature, it makes sense for product teams to discard it and reduce the technical debt. Similarly, if any areas or elements create friction, teams can work on those areas to improve user experience and enhance overall satisfaction.

4. Smart and Unified Decision Making

Product analytics facilitates decision-making based on concrete data rather than intuition. In product-led companies, engineering, design, marketing, sales, and customer success teams are aligned to work together — to build better, stickier products.

5. Feedback Loop Integration

For an effective PLG approach and implementation, you can integrate product analytics into a continuous feedback loop. Gain a more comprehensive understanding of user sentiments by collecting and analyzing user feedback alongside quantitative data. This integrated approach guides iterative improvements, fostering a responsive, user-centric product development cycle.

Product-led retention is all about integrating user sentiments and feedback with product-based insights to understand how customers engage with the product. A deep understanding of user behavior and preferences through a PLG approach can be vital in retaining customers.

Houseware’s Retention Analysis Capabilities for Product-led Growth

The success of a product-led growth company depends on its ability to track the right metrics and identify areas to improve and optimize the user journey. A product-led team can make smart decisions only with this relentless focus on usage data.

With the right product analytics, you can build more substantial alignment between multiple teams and make informed decisions about your product performance, customer behavior, and everything. Houseware product analytics platform provides you with everything you need to know about improving customer retention—especially if you’ve large scale of data.

The Retention feature from Houseware is an all-encompassing feature that enables you to gauge all retention metrics to understand and improve retention.

1. Retention

Houseware’s Retention analysis measures user return rates through retention heatmaps and curves. It unveils insights into cohort-based trends and identifies segments with flattened retention curves. Here’s how you can leverage the retention heatmap:

• Identify the average percentage of users returning to your product on specific weeks after their initial sign-up. Analyzing this data lets you pinpoint critical periods where users drop off or lose interest. This insight lets you focus on improving the user experience during these crucial weeks, potentially increasing overall retention.

• The retention curve helps you perform cohort analysis over time. You can track how retention rates change across new cohorts, allowing you to assess whether your efforts to retain users have been successful or need adjustments. Understanding trends in retention over different cohorts is essential for refining strategies and adapting to evolving user behaviors.

• A flattened retention curve indicates a stable group of users who consistently return to your product. This is a positive sign of product loyalty. The heatmap and curve can help you identify when and where the curve flattens, allowing you to study the characteristics of this user segment. Understanding what keeps these users engaged can inform strategies to replicate this success with other features.

• The retention curve can be broken down into segments or cohorts. This helps you identify specific groups of users with higher retention rates. By discovering which segments exhibit better product retention, you can tailor your marketing, communication, or feature development to cater to the preferences and needs of these particular user groups.

Other features can also help you deep dive into user behavior, improve retention rates, and create a steady revenue stream. These are:

2. Cohorts

One of the basic building blocks of product-led retention is cohorts. These are groups of users who share a common characteristic. This common element can be the acquisition date, a behavioral trait, demographics, or more. Different types of cohorts denote different findings:

• Acquisition cohorts help you with the “when” of retention.  
• Behavioral cohorts allow you to examine the “why” by analyzing which actions drive retention.
• Churn cohorts tell you why customers leave by identifying commonalities among churned users.

Once you have found the right cohorts, you can run experiments to see how your retention tactics succeed or fail with different groups.

3. Funnels

Funnels offer insights into user behavior, highlighting the conversion journey and identifying drop-offs between different steps. By identifying drop-offs, it precisely calculates user conversions, revealing engagement pain points. The feature enables segmentation and comparison based on user behavior across various segments. Through this visualization, you can analyze the time users take between different funnel steps to gauge the efficiency of the user journey. You can leverage these insights to facilitate data-driven product improvements.

4. Flows

This visualization succinctly depicts user paths and behaviors. It allows businesses to identify frequently traversed routes and potential drop-off points. By counting unique user conversions, Flows provides a comprehensive understanding of how users move through key events. This excellent feature helps product teams determine the cause of drop-off and optimize user behavior.  

5. Stickiness

Houseware’s Stickiness blocks provide a crucial measure of user engagement within a specific time frame. These blocks gauge how frequently and consistently users interact with the product, offering insights into the product’s perceived value. Calculated non-cumulatively, stickiness is expressed as the percentage of users engaging with an event on specific days within the chosen time frame. Following a straightforward step-by-step guide, users can easily create Stickiness visualizations, select events of interest, and customize analyses based on frequency and date range. The tool’s configuration features, including time filters, event property filters, and breakdown options, enhance the depth of understanding and enable effective monitoring of user engagement trends over time.

Wrapping Up

By placing your product at the helm, you can enjoy a plethora of benefits — reduced churn, lower CAC, and increased virality. However, realizing PLG’s full potential requires cross-functional coordination. Both Marketing and Sales go hand-in-hand with product-led growth and retention.

By harnessing the product analytics from Houseware and embracing cross-functional adoption, every department can understand and optimize the user journey to boost retention.

FAQs

What is a product-led approach?

A product-led approach is a go-to-market strategy wherein a company uses its product as the key tool to acquire customers. It puts their product as the central focus of all their GTM efforts. Product-led companies put product experience above sales and marketing to drive user acquisition, expansion, conversion, and retention.

What is the difference between PLG and SLG?

The PLG (product-led growth) approach puts the product first to deliver a great customer experience. It focuses on the customer journey to drive adoption, retention, and expansion. On the other hand, SLG (sales-led growth) focuses on identifying and converting high-value customers through sales efforts.