How does retention and engagement helps you make more money?

Retention is powerful for a business. Growth is determined by how efficiently a business is driving retention and engagement Retention directly drives monetisation, here is how.

1. The obvious reason is retention gives more touch points for monetisation.

2. Engagement helps with longer retention, and with higher retention powers more monetisation.

Consider various examples under categories such as freemium, ad, transactional and subscription. In each category, the longer the retention is the higher is the LTV.

• Ad Model (Facebook, Instagram, Pinterest)

Increased retention → more ad inventory → more revenue → increased LTV

• Freemium Model (Spotify)

Increased retention → more upgrades → more revenue → Increased LTV

• Subscription Model

Increased retention → longer subscription → more revenue → Increased LTV

3. Monetisation models are powered by engagement and retention

A more engaged user drives more business. Consider a transactional model based product such as Zomato.

Suppose there are two companies A and B in this category. Company A has 100 active users who order at least 3 times a week each worth 100 Rupees. Company B has 200 active users who order once a week each worth 100 Rupees. Company A will have a total of 30,000 weekly revenue while Company A despite having more users will make 20,000 as weekly revenue.

The same logic applies to other types of models such as ad based businesses.

In Summary, as a user becomes more engaged a business can monetise them more depending on the model.

Every increase of retention-engagement will improve the growth model of the business.