For a SaaS business, product adoption is one of the leading indicators of a successful and growing business. According to Harvard Business Review, it costs 5 to 25 times more to acquire a new customer than keep an existing one. Reflecting on the fact that customer retention is the backbone of SaaS. This eventually translates into the importance of keeping track of the User Adoption Rate, especially when you’re running a subscription-based business model.
What is User Adoption?
User Adoption basically refers to the process when the customers discover purchases and implements a new application into their work or lives. A user adopts the product when the user moves from trying the product to investing in it as a solution.
A customer or user adoption rate is the number of users who’ve adopted your product divided by the total number of users/customers. For instance, if you have a new feature and 350 of your existing 1,000 customers adopt it, you’ll have a 35% user adoption rate.
Factors to consider before measuring User Adoption Rate
To measure the User adoption in a way that lets you take action to improve it, you’ll need to consider several factors:
- How sticky is your product for new users?
- Which behaviors correlate with engagement and retention and whether users perform them?
- What pre-adoption behaviors best predict adoption?
- Which acquisition channels have the highest adoption rates?
- How the speed of adoption impacts your retention rate?
- Whether users are finding and engaging with new features.
- How often and how much users are spending on your product throughout their lifecycle?
The elements of User Adoption Success Metrics
Most SaaS companies start measuring User adoption by tracking only those behavior that indicates if a customer achieves the goals for which they came.
When you know what counts as “adoption” in your product, you can see how User adoption majorly impacts nearly every key growth metric, like Customer Lifetime Value(LTV), average MRR per user, churn rate, etc. This influence only grows over time — the higher your User adoption rate, the larger your user base will be. Adoption is almost universally the success criteria for product or feature launches, making it a top priority for product managers and even for Customer Success Managers.
Figuring out what exactly counts as adoption can be tricky. In general, the “adoption event” should be the action in your product that best indicates that a user is getting value from the product — that they’re doing something your product was designed to help them do.
How do you calculate the Adoption Rate?
User Adoption could be measured on a daily, weekly, monthly, or on annual basis. To calculate the product adoption rate, the number of new active users is divided by the number of signups and is multiplied by 100. Thus you get,
User Adoption Rate = (New active users / Signups) * 100
For example, if your total number of users is 400 and the number of new users in a month is 40, your User adoption rate is (40/400)*100 = 10%.
User Adoption Rate benchmarks in SaaS
In general, the higher your adoption rate, the better. More people using your software means they’re able to see the value of your product and are likely to renew the subscription. For specific metrics, consider these SaaS benchmarks from a 2019 Mixpanel study–
- Reach: Reach represents the total number of people who have used the product in a recent time period. Regardless of the acquisition channel, reach includes all the users who could potentially become active and move further down the funnel to convert, making this metric most meaningful to growth teams. Reach refers to the total number of users who performed an action on a product (calculated monthly). The percentage change in reach month-over-month (MoM), or user growth, tells you how quickly products grow. The median change in Reach was observed to be 3%, while the 90th percentile is 13%.
- Activation: Activation is the moment when a user first realizes the value of your product, also known as the “aha moment” A measure of the percentage of users who get value from your product within the first week: calculated as % new users (based on user creation date) who performed a key action in the first 7 days needed to reach the activation point. The median activation rate is 17%, while the 90th percentile rate is 65%.
- User growth: It is the month-over-month growth in the number of weekly active users. While user growth is paramount to the health of any business, the growth of active users is perhaps the truest measure of the product’s impact. The median growth rate is 4%, while the 90th percentile rate is 72%.
Product improvements that are likely to increase the Adoption Rate
Armed with product analytics and a clear definition of what product adoption means to your team, you can begin to launch and test improvements to:
- Customer onboarding, helps in orienting new users with the product so they start finding value quickly.
- Product design, which helps newly acquired active users find important features and complete key actions that drive adoption
- In-product messaging and tutorials provide clear guidance to your product for people as they start using it
- Customer success workflows make sure to address and solve any roadblocks to adoption quickly.
It is next to impossible to improve the adoption rate of your product to its individual features without fully understanding the underlying elements of product adoption. To break down the many behaviors that drive adoption and measure them properly, you’ll need to invest in a tech stack that can track user behavior and empower your product team to build and test meaningful improvements to your products. This stack should include a product analytics solution that makes it possible to understand exactly which behaviors correlate with adoption and captures the user adoption metrics.
P.S: The featured image is from Pexels.com.