How does Retention effects acquisition?

Retention is very closely related to acquisition. These days a product is usually successful if it has a growth based core with sustainable and repeatable users. Retention is what separates the top 1% market leaders from the rest.

1. Retention directly drives acquisition.

A lot of products today heavily rely on viral loops. A viral loop generally refers to when the new users acquired by a product start referring to their friends and a part of these referred users also joins the product. Now the cycle repeats for these newly acquired users as well. The longer the retention of the users, the more these users will refer to new users. Increase in retention causes more viral touch points in the customer life cycle.

New Sign ups → Referrals/Shares → click on referrals/shares

2. Retention increases LTV.

Retention also directly impacts LTV. With increased LTV, various products can afford to increase their CAC. They will be able to invest more in marketing or sales to drive more acquisition.

3. Retention may increase break even period

Sometimes, an increase in retention will help companies to hit the break even period and get the initial CAC back from the customers faster. For example in products such as Spotify, Calm. They can roll out annual offers to users at an earlier stage. These users might pay the discounted yearly plans early on.