How to Quantify the Benefits of Retention (Part 2)

Part 2: Impact on acquisition spend

This post follows part 1, where I look at the free Retention Benefit Calculator to demonstrate the benefits your platform can reap by focusing on user retention.

This post continues where that left off, to look at the financial impact retention can have on acquisition costs. 

If you have not part 1 - I highly recommend you start there.

​

The cost per acquisition (CPA)

In both our example, the cost per acquisition remained the same, spending €3.25 a month on 10’000 new users. 

Many platforms like Google Ads, show the cost-per-install directly on their dashboard.

This tells only a part of the story, as install to registration conversion rate also often plays a part, I calculate the CPA as cost-per-install divided by the registration rate. 

Of course, there are other costs that indirectly impact the CPA, but I have left them out for now.

​

Reducing acquisition spend

Once you realise that the MAU ceiling can be improved with better retention rate, you also recognise it is possible to reduce the acquisition spend to maintain the same target MAU number. 

For example, by increasing first-month retention rate to 10%, you can maintain the ceiling of 13k users on 8,667 new users a month instead of 10k.

Using our €3.25 CPA value, the acquisition spend drops from €32,500 a month to €28,167, which is €4,333 a month or €52,000 a year saved, for the same MAU.

For growing platforms, consider how this monthly saving impacts your burn rate, or how far this extends your cash runway, or what other resources your can acquire with the same money.

Increasing retention rate allows you to reduce acquisition spend in order to maintain the current MAU ceiling.

​

Maintaining acquisition spend

Of course, the inverse is true as well, if instead; you were to reach the 15k ceiling set by the target retention rate, it would take 11,538 new users a month on the current retention rate.

The increase of 2k users at the ceiling, thanks to the improved retention rate is equivalent to acquiring 1,538 users a month, that would normally cost an extra €5,000 a month or €60,000 a year.

​

Getting more bang for buck

So across the two posts demonstrating the free Retention Benefit Calculator, we have seen that the benefits of focusing your product roadmap on retaining users is two fold. 

1. Over time you build up a base of more valuable retained users
2. Acquisition spend can be maintained or reduced according to the financial needs of the business

It’s a no-brainer at this point, yet platforms don’t quite understand the importance of providing value to new users, given how easy it is to acquire them. 

​

But how to improve retention rates?

The User Engagement Blueprint was specifically written with this in mind. It provides an easy-to-implement data-led framework for your app or platform that helps you redirect development efforts to the features that add value to your user base and keep them coming back month after month. 

Get started now -  get The User Engagement Blueprint for free​