Investors look at a lot of startups before laying a bet. But how do we know if the company’s product is catching on, or has failed to find traction? And as a founder, how do you know if you’re headed in the right direction or…nowhere?
In a recent episode of the superb podcast This Week in Startups, investor Jason Calacanis and guests Craig Zingerline and Allen Chen broke down a key metric: customer retention.
Do you have product-market fit? There’s no one better to answer that question than the people who use your product every day. Here are the customer retention numbers to look for, over a 6 month period, for different types of startups:
- Consumer social (think Instagram): 25% is good, 45% is great
- Consumer transactional (think Uber): 30% is good, 50% is great
- Consumer SaaS (think Netflix): 40% is good, 70% is great
- Small and medium business (SMB) and midmarket SaaS (think Freshbooks): 60% is good, 80% is great
- Enterprise (big company) SaaS (think Oracle): 70% is good, 90% is great
As you can see, business-to-business products should be a lot stickier than business-to-consumer ones. Consumers are fickle and their investment is minimal. At the other end of the spectrum, major corporations don’t adopt new software lightly. It’s a process that sometimes takes years and costs a fortune. So they don’t switch often, either.
The panel emphasized that you don’t have to get to these numbers right away, but that they should be a goal. Good luck!
For more on startups, check out these posts:
- “Everybody Thought I Was Crazy”: How Brian Armstrong Built Coinbase
- The Ultimate Score: Turning $300k into $2.4 Billion on Coinbase
- This Is How Startups Pitch Investors
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