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Part 2: Time to upgrade your reports: switching from sign-ups to on-boarded users

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February 7 · Issue #10 · View online
DataDiary by InnerTrends
Part 2: Time to upgrade your reports: switching from sign-ups to on-boarded users
Why should you transition from using the number of sign-ups to on-boarded users in your reports? That was the insider’s tip we shared with you in our previous issue.
The retention rate and goal conversion rate made our headlines last week.
Have you given it a thought? Have you also considered the impact it has on other reports?
Today it’s the User Lifetime and the Cost of Acquisition’s turn to be in the spotlight. Let’s see how using sign-ups instead of on-boarded users can skew your perception on your key metrics. 
Example #1: User Lifetime for sign-ups vs. for on-boarded users
The User Lifetime Value is defined as follows:
       User lifetime = 1 / Churn
Now, the churn rate can be reported for sign-ups or for on-boarded users. Most companies report user churns for sign-ups.
But let me show you how these 2 figures influence your results and your perception on how your business is doing.
For the sake of the example, let’s assume that you have 1000 sign-ups on day #1 and after 4 months 340 active users.

If you use the number of sign-ups for the calculus, you will get a churn rate of 16.5% and a user lifetime of 6 months.

Now let’s look at the same example from an on-boarded user’s perspective.
Stats show that 600 users churn the very first day. That means that over the course of the following 4 months, for the 400 remaining users the average churn rate / month will be 5% and the user lifetime of 20 months.

That means the on-boarded user life time is at least 1.6 years - versus 6 months when reported to all signups. Quite a difference!
This is an oversimplified example, since it does not include all the variables when calculating churn, such as:
  • Previous users
  • Reactivated users

Still, it helps us make our point: your marketing campaigns and customer acquisition efforts can determine significant fluctuations in the number of created accounts. Many times, the fluctuations are not found when it comes to the number of on-boarded users. 
Here is a random example from one of our customers:
Reporting churn to sign-ups is prone to these fluctuations, while reporting the number of on-boarded users will offer you a much more accurate and reliable view on your business. 
Example #2: Cost of acquisition for sign-ups vs. for on-boarded users
Let’s take the example of a company whose CLV / client is $1100. In order to optimize costs, the company sets a target of $1000 for each new client.
Their conversion rate for the free trial users turning into paid customers is 10%. This means that, in order to generate a new client who will pay $1000 for the period using this product, the company needs to generate 10 free trials for which they can pay up to $100 / user. 
The company hires an advertising agency and sets the acquisition target to a maximum cost of $100 for each new trial.
After three months of advertising campaign, the company crunches the numbers. The results are not as expected. The sales targets generated from the advertising campaign are not reached although the metrics reported by the agency are within limits: less than $100 for a free trial.
On a more detailed analysis, the company realizes that conversion rate for the free trial users turning into paid customers is much lower than 10%. Digging even deeper, the company notices that there are far more free trials that abandon the product in the first few days after sign-up, compared to the free trials generated by other marketing channels.

How come?
The users’ decision to create an account depends on the promise made on the landing page and on the banners. Create false expectations, and they will leave.
This is exactly what happened. The advertising company started to over-promise in order to reach its target, so many users left before onboarding. While the agency reached its target, the company did not.
Using the number of on-boarded users and not the sign-ups in your analyses and decisions will ensure a higher quality of the generated leads and will help you eliminate the problems from the scenario above.
The security this method offers in unparalleled. You will be able to raise the stakes much higher, and count on a more efficient outcome.
For a 25% conversion rate from on-boarded users to paying clients , the company can raise the budget to $250 for each on-boarded user. It will also ensure much more chances for the final revenue targets to be reached. 
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