Retention is the new Acquisition

There’s a misconception in our market where Acquisition is mistaken for Growth.

That couldn’t be further from the truth.

I understand that there are at least three different types Growth:

– User Growth

– Revenue Growth

– Usage Growth

If we’re talking about Revenue Growth, you could massively increase it just by doubling down on monetization. I believe this angle by itself makes it clear why Acquisition (meaning user acquisition) doesn’t necessarily lead to Growth.

Still, I don’t think this holds true only from a revenue perspective. It seems that when we talk about Growth, we’re talking about Acquisition instead. And whereas it isn’t completely off to think like that, I do believe that it’s a narrow view that can severely limit our approach to Growth.

We can even see it reflected in the roles we have now. SEM positions disguised as Growth Marketing roles. Or Lifecycle, Content Marketing, SEO, or Performance Marketing. It’s all Growth Marketing now. So it must mean that it’s all Growth, right?

Not really.

We could agree that Growth Marketing is about all Acquisition-driven stuff done at scale. But now Growth as a whole.

In order to grow, a product or service needs to be able to accumulate customers – with a big emphasis on the accumulation part.

If not, they’ll grow and fall as fast as the Clubhouse hype – or Google+, Periscope, and so many others who snowballed only to fail as fast as they acquired new users. They failed due to not delivering enough value, which is one of the leading causes of poor retention.

ps: remember, last week we discussed why engagement leads to retention – not the other way around.

Retention dictates how fast your acquisition can be translated into Growth. Not any kind of Growth, but the one we like to see: consistent, steady, and ready to compound.

But sometimes I guess we forget that.

How retention drives acquisition

 

Even in a bullish scenario where a company manages to acquire new customers every month, it’ll run out of people to sell its products. At some point, they’ll need as many repeat customers as possible to continue growing. And they’ll need those customers to spread the word to keep their customer acquisition cost (CAC) under control.

And it goes beyond the leaky bucket problem. This is actually about customer centricity and delivering value. That’s because:

Retention signals product-market-fit – especially for paid products.

Product-market-fit signals customer happiness.

Customer happiness signals positive word of mouth.

Positive Word of Mouth drives referrals.

Which drives Compounding Growth.

I’d even say that Acquisition is nearly useless if you can’t deliver what has been promised to your customers.

Growth is so much about Retention as it is about Acquisition. Heck, I’d even argue that it’s actually more important.

Because retention is what you want, it’s the thing you can’t fake. There’s just no way around it: your product either stands up to its promise to customers or doesn’t.

Like I posted yesterday: Acquisition can be bought; Retention must be earned.

 

“What about e-commerce?” you ask. “They can rely 100% on Acquisition and still be fine”

I believe the same logic holds for them. They still rely on repeat sales to grow and positive word of mouth to attract new customers. Otherwise, they’d be forced to acquire new users indefinitely. This would be a problem because they rely primarily on paid acquisition, which ramps up over time. Even in the rare case that you manage to outsmart your customers and push junk to them, they’d eventually accumulate too many detractors. This generates massive negative word of mouth to the point where acquiring new users becomes virtually impossible. That’s why lots of scammy products never really take off: although they’re able to drive decent sales, at some point, it all stops: angry customers will start complaining and denouncing it all over the internet. This also explains why such products or services usually rely on distribution channels where customer feedback is poor or inexistent (think about scammy products advertised for older adults on TV shows, for example).

Closing

There’s a lot of confusion about Growth and Growth Marketing, Retention and Engagement, Product Growth and Growth, etc. People may say that there are different interpretations of it, but I disagree. I see that these multiple interpretations sometimes even hold us back from doing our best work.

I believe the best collaboration happens when our communication can be clear and assertive. That can only occur when we have the same understanding of what we mean when we say things. So I’ll continue discussing these definitions with people until we achieve common ground.

I’m also aware this topic bothers me more than usual because of my idiosyncrasy, but I don’t mind.

If you don’t agree with something I wrote here, do write me back: I’d love to explore other possibilities with you and write a new version of this article.

Oh, and I remember last week I promised an article on Activation, but as I was writing it, I realized that it was more important to go through this thought exercise first. We’ll get there, don’t worry.

 

📕What I’ve been reading

How to design a referral program by Andrew Chen: great timing from Andrew to release this article in the same period we start to dig into Growth 😉

New App Store ads: Apple continues to ramp up its ad game by adding a new ad unit to the App Store.