User engagement is the lifeblood of every SaaS business.
Whether you run a light, freemium prosumer app; or a heavy, enterprise B2B app – the success of your business is dependent on the engagement level of your user base.
This is because the business model of SaaS is based on retention.
It’s not about acquisition. You can sign-up as many customers as you want, but if they all leave after a month – you lose. The entire SaaS business model breaks without retention.
And engaged users stick around for a long, long time. Unengaged users don’t.
Without an engaged user base, you don’t have retention. Without retention, you don’t have a business.
It really isn’t much more complicated than that.
So…if user engagement is really this important to any SaaS business, why is it so hard for most of them to answer some seemingly simple questions,
I have always found it crazy that almost no SaaS businesses truly understands how engaged their user base is — now or over time. Certainly not from a quantitative perspective.
Even though it’s super important.
In this post, we will attempt to remedy that by laying out a framework for creating an essential engagement score that will allow you to actually quantify the engagement of your userbase.
STEP 1: Define Engagement for your Product
This first step for creating an engagement score is a strategic step. In this step you need to think about what engagement means for your specific product.
A quick note about active vs engaged users. They are not the same. Lincoln Murphy, one of my favorite SaaS thought-leaders said it best:
“Very often, I see people using the terms ‘active’ and ‘engaged’ interchangeably when talking about user engagement. I think this is a mistake. These terms are related…but do not mean the same thing. You want “engaged” users…not just active users. A common definition for engagement for many SaaS apps is: number of logins. Seriously. This is a lot more common than I wish it were (I see it ALL THE TIME), but this is how a lot of SaaS providers measure ‘engagement.’ Logging in is a proxy for an active user, but it is certainly not engagement. Someone might login to your product to find the cancel button. Engaged users are those who are logging in and using the features that are driving value for him/her.”
I completely agree with this perspective. We don’t believe in some universal definition of engagement that applies to all products. Each product is unique. Each product has its own nuances which define successful engagement. So…it’s important to define — specifically — what it means to be “engaged” with your product.
For example, a B2B productivity tool could define “engagement” as a certain number of projects created, tasks created, tasks completed, team members added, comments left, files uploaded, projects completed, etc.
A social networking application could define “engagement” as a connections made, posts/updates, likes, comments, etc.
The point is — your product IS unique. Don’t run away from that fact. Embrace it and create a engagement model based on the important (and unique) activities that are important to your product. My guess is that you already have a good idea of what these activities are.
If you don’t, I would suggest a quick survey of your team. Ask everyone a very simple question:
“What is an engaged user of [our product]?”
They should answer with something like, “An engaged user of [our product] does X, Y, Z.”
You will receive some very interesting answers. Undoubtedly, some will be very qualitative while others will be more quantitative. None will be “right” (there is no “right”), but these responses from your team will give you a great starting point for defining engagement and maybe help you think about things you hadn’t before.
Regardless of how you get there, you should now have a list of ‘engagement’ activities that a user can take in your product (or even outside of your product). It could look something like this:
Once you have this list created (and don’t worry — things can change — you will be iterating and refining this over time and as your product evolves)…you can move on to Step 2 – tracking these activities.
I’m assuming most SaaS teams reading this are already tracking their important product events.
But if you’re not….what are you waiting for? Get yourself a Segment account and get it done.
No excuses…make it happen (then move on to step 3).
Now that you are tracking your important engagement events, the next step is to weigh each event based on its impact, or its importance, to overall engagement with your product. This is an essential step because:
Certainly the act of inviting a new user to your product is a more engaging act than simply logging in (as Lincoln Murphy argues). Writing a long post on a social media site is more engaging than simply liking a post. Creating a project on a task management application is a more engaging than simply completing a single task. And so on.
So you need to weigh these activities accordingly. Create a table that looks like the one below. List your engagement events on the left column, then add a column for Event weights:
You can have a score range of 1–10, 1–100, 1–1000…whatever you want. The point is you should give each event a point value that is in line with its value to overall engagement. As a general rule, more common, higher-frequency events should have lower point values. Less common, lower-frequency events — those used by “power users” — should have higher values.
Then, for each one of your users, you should add a column for the number of times they triggered each event over a period of time (for example, the last 7 days):
Then simply multiply the event weight by the number of events – it should look like this:
The total of all your individual event values will give you a total engagement score for an individual user.
Then…just run this for each one of your users and you will have the basis for a quantified user engagement score.
But don’t stop there. Next step is to give it all some meaning.
While this step isn’t necessary for creating an engagement score for your product, it’s an essential step for making that score valuable for your business. There are a few ways you can give this score context so that it can help you make decisions:
When every one of your users has an engagement score, that gives you the opportunity to do something amazing — actually rank your users based on their engagement. And this opens up so many opportunities. To name a few:
This kind of user ranking can help you understand your users in the context of their actual engagement with your product — which is incredibly powerful.
By calculating a score for each one of your users, you can aggregate those scores to create an engagement score for your product as a whole.
By tracking this average score overtime, you can determine whether or not the work you are doing on your product is actually driving engagement.
A user engagement metric becomes tremendously helpful when comparing different populations of your of users. You can compare the engagement of new users vs older users; users on a free plan vs those on a paid plan; users with different access-levels; etc.
The opportunities to gain insights by comparing engagement across segments are endless.
Ultimately, a good user engagement score is an essential business metric — not just a product metric — for any software business. So, comparing the levels of user engagement to other business metrics — like sales, retention, growth, LTV, etc is a great way to ultimately predict and forecast business progress based on engagement levels.
And if you don’t think user engagement is tied to the value of your business…read this (it cost Twitter over $1B in market cap): Morgan Stanley downgrades Twitter
Peter Drucker is famous for saying,
“You can’t improve what you don’t measure.”
This is certainly true when it comes to user engagement. It’s an essential metric for every software business — so you need a way to measure it and make it actionable. We hope this post helps offer a framework for getting a quantitative handle on engagement.
If you’d like to have a product that does all of these steps for you, we can definitely recommend Sherlock – we’d love to hear your feedback!
About the Author: Derek Skaletsky is the Head of Product and Customer Success at Kissmetrics. Previously, he founded the engagement automation app Knowtify which was acquired by Kissmetrics.
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