The Most Important Growth Metric for Early Startups

Author: Jeff Chang (Growth Engineering Blog) URL: https://www.growthengblog.com/blog/the-most-important-growth-metric-for-early-startups One-line: Cohort retention rate is the metric that determines whether a startup has a long future — acquiring users is much easier than keeping them.

Key claims

• Cohort retention rate is the most important metric for most early startups to understand and grow; it strongly determines whether the startup has a long future.
• Measure it by cohort (users who joined around the same time) — comparing a new user’s retention to a long-tenured user’s makes no sense.
• The point where the curve flattens is the number to memorize: in the example, ~35% at around five weeks — the share of signups you can expect to keep long term, usable for back-of-envelope math.
• Acquisition is easier than retention: SEO, referrals and paid can bring users at scale; getting them to stay is the hard part.
• Kyle filed it under Net Revenue Retention — the revenue-side cousin of the same idea.

Notable quotes

• The most important growth metric for early startups — Growth Engineering Blog by Jeff Chang Net Revenue Retention
  • For most early startups, I think the most important metric to understand and attempt to grow is cohort retention rate (will shorten as just retention rate). **Retention rate is a strong determining factor of whether or not your startup has a long future. **Some people even define Product-Market Fit as retention
  • It doesn’t make sense to compare retention rates of a newly joined user and a user who has been around for a long time, so the correct way is to measure it by cohort. A cohort is a group of users who joined around the same time.
  • There’s a specific point on the cohort retention graph that’s very important to know - founders and growth leaders should basically have this memorized
  • At around 5 weeks, this retention graph starts to flattens at 35%. This data point is important for two purposes. First, you can expect around 35% of your signups to be around long term, which can be used for back of the envelope calculations for things like paid acquisition. The 35% number is your long term cohort retention rate, which is the most important growth metric for early startups.
  • Why is long term retention rate for startups so important? **In general, acquiring users is much easier than getting them to stay. **There are a lot of acquisition channels that you can use to acquire users at scale, such as SEO, referrals, and paid, but the growth strategies used to retain such as emails and notifications can only change your retention rate by a certain amount. Over time, acquisition rates of good startups change a lot - they can potentially be 1000x or more, while retention rate doesn’t usually change as much, maybe double at best.

How it connects

• Net Revenue Retention
• Retention
• Cohort Analysis
• Growth
• Product-Market Fit