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He mentions a false positive of paying customers. I have some personal experience of customers paying for a product and not using it. We're all guilty of it in

by bko 5y ago

He mentions a false positive of paying customers. I have some personal experience of customers paying for a product and not using it. We're all guilty of it in one way or another. What percentage of paying customers should be active? 100% is unrealistic, but 0% is troubling since they are not getting any value from it and its not validating your idea. How does this depend on price of the product or whether its a subscription or not?

rexreed 5y ago
There will always be inactive customers, but if your customer growth month-over-month is not greater than your % of inactive users (the inverse of % active users), then you will stall and enter decline. For example: if 80% of current customers login on a regular basis (monthly, daily), and you're growing at 10% per month new users, you will actually decline at some point because your 20% inactive users is greater than 10% new customers. It might take some time, but at some point customer churn will outpace new customer growth. So you have to measure new customer acquisition as a % of current installed base, total % of actives (measured on a logical period relevant for your solution), and total churn % (non-renewals divided by renewals). If the churn measure is measured differently you can think of it as the renewal rate because you want to measure retention vs. acquisition. To simplify: if acquisition is not greater than retention, then you have problems. Retention is dependent on active use with some factor and with some delay.
LimaBearz 5y ago
When I first read that it completely made sense. But my mind immediately ran to leetcodes subscription. I imagine their churn is fairly high, but they can also capitalize on new graduates or folks looking to up their game to keep revenue flowing in so that by itself is only part of the story. Likewise their active count maybe falls off a cliff after 4-6 months for users who actively engage with platform, and I’m sure some of them make the purchase and either never use it or give up fairly quickly. To toy with your question specifically let’s use LC as an example. Some percentage of users need to be engaged and referring it via word of mouth for it to be validating. As for retention and engagement, once you have a decent cycle of customers coming in that becomes a game psychology. Think Reddit emailing you on every comment you get, notifications, gamey mechanics like Robinhood, or some other mechanism to reinforce behavior
ehnto 5y ago
My first and only paid subscription on one product I built was from a user who never used the service, and also never cancelled their subscription. It had no free trial, so they knew they were paying money from the get go. After a while I cancelled their subscription and sent them an email saying they could re-enable if they wanted to keep using the service. I felt bad for taking their money. It was definitely motivating and I would say it was part of the reason I kept working on it, but unfortunately no-one else subscribed, and it wasn't to be.

by bko 5y ago

rexreed 5y ago

There will always be inactive customers, but if your customer growth month-over-month is not greater than your % of inactive users (the inverse of % active users), then you will stall and enter decline. For example: if 80% of current customers login on a regular basis (monthly, daily), and you're growing at 10% per month new users, you will actually decline at some point because your 20% inactive users is greater than 10% new customers. It might take some time, but at some point customer churn will outpace new customer growth. So you have to measure new customer acquisition as a % of current installed base, total % of actives (measured on a logical period relevant for your solution), and total churn % (non-renewals divided by renewals). If the churn measure is measured differently you can think of it as the renewal rate because you want to measure retention vs. acquisition. To simplify: if acquisition is not greater than retention, then you have problems. Retention is dependent on active use with some factor and with some delay.

LimaBearz 5y ago

When I first read that it completely made sense. But my mind immediately ran to leetcodes subscription. I imagine their churn is fairly high, but they can also capitalize on new graduates or folks looking to up their game to keep revenue flowing in so that by itself is only part of the story. Likewise their active count maybe falls off a cliff after 4-6 months for users who actively engage with platform, and I’m sure some of them make the purchase and either never use it or give up fairly quickly. To toy with your question specifically let’s use LC as an example. Some percentage of users need to be engaged and referring it via word of mouth for it to be validating. As for retention and engagement, once you have a decent cycle of customers coming in that becomes a game psychology. Think Reddit emailing you on every comment you get, notifications, gamey mechanics like Robinhood, or some other mechanism to reinforce behavior

ehnto 5y ago

My first and only paid subscription on one product I built was from a user who never used the service, and also never cancelled their subscription. It had no free trial, so they knew they were paying money from the get go. After a while I cancelled their subscription and sent them an email saying they could re-enable if they wanted to keep using the service. I felt bad for taking their money. It was definitely motivating and I would say it was part of the reason I kept working on it, but unfortunately no-one else subscribed, and it wasn't to be.