https://www.lennysnewsletter.com/p/what-is-good-retention-issue-29

“Great retention is THE scalable way to grow a product. It’s the best indicator of product-market fit, it is the most important factor in a user’s lifetime value, and high retention drives all of the best acquisition strategies. It’s growth’s equivalent of the triple-word-score.”

— Casey Winters

As a companion to this post, Casey also published an essay delving into ways to increase retention, amongst other topics, which you should definitely check out.

What is good User Retention?

Let’s define user retention as the % of users who signed up and are still active (i.e. using the product, making a purchase, posting a photo) six months later.

Consumer Social: ~25% is GOOD, ~45% is GREAT

This includes companies such as Snapchat, Twitter, and Instagram that are free to use and are generally supported by advertising. The denominator in this category are registered users.

Public comps

• Facebook: 60 - 70% 6-month user retention
• Instagram: 50 - 60% 6-month user retention
• Snapchat: 33% 3-month user retention, 30% 24-month (source, source)
• Twitter: 31% 3-month user retention, 22% 24-month (source, source)

Consumer Transactional: ~30% is GOOD, ~50% is GREAT

This includes companies such as Airbnb, Lyft, and TurboTax that are generally supported by one-off purchases. The denominator in this category are users who have made at least one transaction.

Public comps

• TurboTax: 77% 12-month customer retention (source)
• Lyft: 22% 12-month customer retention (source)

Consumer SaaS: ~40% is GOOD, ~70% is GREAT

This includes companies such as Netflix, Spotify, and Hulu that sell a monthly/yearly subscription to consumers. The denominator in this category are users who have started a paid subscription.

Public comps

• Amazon Prime: 93% 12-month customer retention (source)
• Dropbox: ~80% 12-month customer retention
• Spotify: 72% 6-month customer retention (source, source)
• Netflix: 66% 12-month customer retention (source)
• Hulu: 53% 12-month customer retention (source)

https://www.lennysnewsletter.com/p/payback-period

What is a good payback period?

Broadly, the consensus is:

• For B2C businesses, a payback period of less than 1 month is GREAT, 6 months is GOOD, and 12 months is OK. And the exceptional cases can pay back their acquisition costs on the first transaction.

What exactly is payback period?

The payback period is the amount of time that it takes to earn back the cost of acquiring a new customer. For example, if it costs you $100 to acquire a new customer (e.g. running FB ads) and you make $25 per month from that customer, your payback period is four months.

The biggest mistake founders make when calculating their payback period is looking at revenue, without subtracting the cost of good sold (i.e. margin):

“If a startup acquires a customer for $100, and that customer generates $10/mo in revenue, with 80% gross margins (or $8 of monthly gross profit), the payback period on a gross profit basis is $100/$8 = 12.5 months. Not 10 months, if you were just looking at revenue. As my former CFO used to say, ‘Revenue doesn’t pay our salaries—gross profit does.’ You have to take out the cost of goods sold, and many people do not.”

—Brian Rothenberg