“What’s a good retention rate after the first month?”
Another text thread from the archives
“What’s a good retention rate after the first month?”
I’m not always the sharpest crayon in the box, clearly.
A friend was looking for concrete benchmarks on paid subscriber retention.They asked what percentage of paying self-serve customers typically make it from Month 1 to Month 2.
The context: The current setup they described:
They specifically wanted to know if something around 50% retention was normal (they mentioned one company they used to work for started at 50% and considered it pretty bad).
They also asked whether the benchmark should be viewed on a monthly or yearly basis.
They clarified that this question was for a non-contracted, self-serve platform, and shared that their self-serve customers spend around $250/month on average. ($3k ACV)
My response:
This question seemed pointed heavily at logo retention, aka the sheer count of customers that stick around after a period of time. For a PLG product with a usage-based lever (this is an observability product), there will be a very dramatic mix in the logos that come onboard and their spend. In many of these scenarios, 20% of the customers drive 80% of the revenue. A better measure of self-service effectiveness is net dollar retention (NDR) . Here’s how I measure NDR.
I dug in a little more with my friend. What did the actual usage-based revenue coming in the door look like after month 1? A year? Per my developer gtm playbook she can consider anything over 110% NDR pretty good, with 140% best-in-class.
This friend was spiraling because in the short term she had some logo churn—users were signing up and kicking the tires but not making it to the first or second month of using the product. But, when she pulled back and looked at the bigger picture, those $3k ARR accounts were expanding well, quite well in fact, some folks were ramping up spend so that NDR was as high as 120% at month 3–well on her way to best-in-class. We then went on to discuss how to lock those accounts into contracts, which is a subject for another newsletter entirely.
That’s it for this week’s batch. If you’ve got a gnarly growth question you’ve been texting your friends about, send it my way — I might feature it next time.