A poor onboarding experience can cost your company. But have you ever estimated exactly how much you can gain by improving the first experience that prospects have with your product?
Let’s do some very simple math. Let’s say your average subscription price is $50/per month. Your user activation rate is 20%.
What is user activation?
Well-defined user activation will allow prospects to experience an “a-ha” moment during the first product interaction. In his book, Platform Scale (which I highly recommend), Sangeet Choudary discusses the importance of focusing on core value unit when designing platform-based products.
Interactions designed around core value are what should be used as your user activation metric.
User activation is an action or set of actions that deliver the core value unit to a prospect for the first time.
A higher user activation rate also increases the probability of a prospect converting into a paid customer. Obviously, this becomes even more critical for a freemium-based SaaS business model.
As I discussed in the case study on how a simple change to a product can improve the product activation rate by 100%, Slack uses 2,000 messages as the primary goal for each newly signed-up user. “93% of those customers will stay with Slack.”
Let’s get back to the math:
Product price = $50/month
User activation rate = 20%
Activated-to-customer conversion rate = 50%
(Avg. customer stays with you for at least 12 months.)
Customer lifetime value (CLV) = $50/month * 12 months = $600
100 Free Trials => 20 User Activations => 10 Customers
10 customers * $600 CLV = $6,000 in annual revenue
If you increase your product activation rate from 20% to 30% while your activated-to-customer conversion rate stays the same, 100 free trials will result in 15 paid customers.
15 customers * $600 CLV = $9,000 in annual revenue
The 10% increase in your user activation rate results in a $3,000 increase in revenue that you generate from the same 100 free trials. We can also estimate that every additional active user is worth $300.
This is a very simplified version, but this is a good place to start. Sure, agreeing on what should constitute user activation metrics is a difficult task for the team, and calculating CLV isn’t an exact science either, but working on boosting your onboarding experience can have immediate benefits, and it helps to have monetary value attached to this process.