Ever thought that you have PMF - when all that you have is short term arbitrage? How?

The retention curve is where the future of any digital product reveals its self, it is essentially plotting how many people in a cohort are retained over time. Unfortunately, the curve is often misunderstood - it can be direct forward to grasp that a curve that is higher is better than a lower one but this is of secondary importance - what is really important is how quickly the curve reaches an asymptote. (Essentially when users stop churning)

image.png

Product A will have short term arbitrage; CAC Payback will be faster and LTV will seem high - while these give PMs confidence to scale the product, the relationship is most likely not sticky.

Product B has PMF despite lower early retention, past a certain point, customers are loyal.

So then, what do healthy churn rates look like?

Let’s benchmark some churn rates:

Consumer facing products (Spotify, Netflix etc)

  1. Day 1 Retention: retaining 30 - 40% of users on day one is a strong indicator that the product has captured initial interest.
  2. Week 1 Retention: By Day 7, we can aim for 15 - 25% with anything lower suggesting that the product isn’t meeting user expectations quickly enough.
  3. Month 1 Retention: 10 to 15% is generally considered health.
  4. Annual Churn: 20 - 30% for mid tier products and 5 - 15% for premium services.

PAYG products (Mkopa, Watu etc)

  1. Repayment Rate for a quarter of loan period: >85% of instalments should be paid on time
  2. Churn Over Loan Term: <20% should be healthy with higher rates indicating affordability or product satisfaction issues.
  3. Repeat Purchase Rate: 30 - 50% of users should return for upgrades or new products.

Fintechs (BNPL, micro - finance etc)

  1. First Cycle Default Rate: <10 - 15% with higher DRs indicating poor customer targeting and product-market mismatch
  2. Repeat Borrow Rate: 50 - 70% return for subsequent loans
  3. MAU Retention: >20 - 30% in the first 6 months

B2B Saas (Slack, Salesforce etc)

  1. Monthly Churn: < 3% for MSMEs, <1% for enterprise SaaS
  2. Annual Churn: 5 - 10% for SMBs, 2 - 5% for enterprise
  3. Net Revenue Retention: 110 - 130% is excellent driven by upsells and expansions.