The One Growth Metric that Moves Acquisition, Monetization, and Virality

- It isn’t just about retaining more users, it impacts every facet of your growth model and has multiple layers of impact on the health of any business. In fact, retention is one of the key factors that determines the long term success of any startup. Retention will make or break your company.

- In 2014, my team and I had been digging into retention for our new HubSpot Sales product. The more we unearthed, the more I realized how critical improving customer retention was to blowing out the product’s growth story.

- A lot of teams at the fastest growing companies focus heavily on LTV. The problem with this is that LTV typically is not the limiting factor in growth - payback period is.

3. Retention builds an acquisition competitive edge: - As you increase retention, monetization, and LTV,  you can pay more to acquire a customer. In doing so, you can push competitors  out of acquisition channels, open up new channels that were previously too expensive,  and grow faster.

- Spotify offers a great example of how retention can improve monetization for freemium models. When you sign up for Spotify for free, they serve you ads, many of which target you to upgrade to the premium ad free service. Let’s walk through two different scenarios demonstrating how improvements in retention impacts monetization for Spotify.

- Since improving retention drives monetization - meaning you make more money over a designated period of time - it also shortens your payback period.

1. Retention drives acquisition: As you retain more users, those additional users take more of the key actions that accelerate acquisition, either through sharing, inviting, word-of-mouth, or creating content.

2. Retention improves monetization: - When it comes to monetization, two important things happen with improved retention - you can retain a larger proportion of a cohort, and in doing so, make more money from that cohort within a given period of time, and you can increase the length of time that a cohort retains, increasing LTV

4.   Retention accelerates payback period: -  Payback period is the time it takes to break  even on the cost to acquire a customer.  It also determines how fast you can start reinvesting in acquisition to fuel growth.  Improving retention can help shorten your payback period to grow faster.