Investors want to be able to foresee the future and reduce uncertainty about the growth of a company. Subscriber retention on the annual plan is directly related to the value of the product. However, it comes with a major lag, for example, an annual plan is only observable one year after the customer signs up.
Therefore, the best indicators for predicting a new subscription are the current engagement rates of existing subscribers. Let's see which engagement metrics arouse the most interest among investors.
Commitment for long periods at the end of a subscription
There are many engagement metrics to consider. The most important thing is how subscribers use the main functionality of the application for longer periods, specifically when the end of their subscription is near. If they are actively using it, it is a sign that they are getting the expected value (or even more) from the product, which increases the likelihood that they will renew for another year. The obvious metric to review is how often the user opens the app towards the end of the period in question.
For a deeper analysis, look at the usage of core app functionality during these periods. Cohort engagement analysis is useful in this case; You can see what proportion of users who started using your app 12 months ago are still opening it and using core features three, six, nine, and 12 months after first use. If we see, for example, a 60% churn rate in the third month of installing it, it is obvious that the cohort will not have much chance of getting more than 40% of their customers to resubscribe in nine months, because it is very likely that they have canceled their annual subscription in these initial three months. It is in this situation that the direct relationship between engagement and retention comes into play.
Frequency of interactions with the main functions of the application
To make a strong case for the value customers get from the product, investors want to see how many interactions with the app's core features occur on average over the lifetime of the respective subscriber cohort. For example, interactions that go beyond simply opening the app mean subscribers are consciously looking for value. Each startup must define its “key interactions” and help users by guiding them towards this main activity within the product.
At my company, where book summaries are one of the main types of content, we look at how many book summaries are read on average per month by users and which book summaries generate the most engagement. These data feed our gamification strategy. Thus, we make changes based on the data we observe, for example, we create new challenges taking into account the logical intensity and the topics of interest to our users.
Content Quality Metrics
Completion rate or a similar metric represents the quality of your content and depends on the type of app. For example, a "completion rate," or how many customers who started a book summary and read it to the end. If the completion rate is low, that may mean that the client has a wide range of content selection, and may walk through the library previewing what is within the specific piece of content. To avoid this trap, the product analyst could track the completion rate after a certain "aha-moment," which, in the case of the book summary app, would be a user reading the second chapter of the summary.
Other types of apps may use session duration or other key events (for example, the number of workouts completed for health and fitness apps, the number of videos exported for video editing apps) to represent a similar concept to investors. Developers can modify the tracking system to fit the preview use case and not distort objective reality.
Adhesion of your product
DAU/MAU or WAU/MAU and other similar metrics are another matter of interest to investors, but with a lower priority than all of the above. Because it is important? These stickiness ratios can show how your user base uses the app, or they can track traffic to your app. That everyone uses the app only once indicates a low propensity to renew the subscription or to continue using the product after the trial or beyond the freemium (as long as they exist in the product).
For example, Duolingo has done a great job reinventing "daily streaks" for its users. Duolingo's latest letter to shareholders for Q2023 26,9 says the app's DAU/MAU ratio hit 1.435%, while some power users hit streaks of XNUMX days.
Finding a "golden cohort" of users
Another way to show your engagement metrics when you have a massive audience or are an early-stage business is to first find a “golden cohort” of your users. This cohort represents an audience as close as possible to your target users.
A cohort of 1 or 10 users may not be persuasive enough for investors to trust the startup team to replicate the metrics with a broader audience. So it must be a delicate balance in selecting a large enough cohort with good enough engagement metrics to be proudly called "the golden cohort." The same can be done based on markets: stable penetrated market vs. a new growing market. Investors want to see a positive future for your product.
Dissecting your user cohorts showing a 5-6x difference between a “main” and a “new” market is a great way to show the upside potential of scaling operations and investing more in new markets. This information includes the localization or other adaptations of your product to the specific needs of the market.
Over time, past performance and steadily increasing app engagement metrics will provide more confidence in the team, but a specific plan for future action must complement this. Ideally, this would include fully realized MVP projects and A/B tests that show the potential for large-scale application of planned changes and updates to the product.
User retention is directly affected by the improvement of customer engagement, which influences the company's results from a financial point of view. As a side effect of improved engagement, your customers enjoy an improved user experience. This result translates into fewer support requests and a greater willingness to buy more of your ecosystem of products, for example, buying product upsells and creating virality effects through positive word-of-mouth advertising. The benefits of improving your top engagement metrics are enormous and should be a cornerstone of your long-term, sustained growth strategy.
