Product Activation Rate Optimization (PARO) – How to get more users through the activation point and reduce churn

PARO - product activation rate optimization

When users sign up for a free trial it feels amazing. It is an achievement every time even if it happens several times every day.

You know what else feels great? When they activate from free trials to premium plans essentially giving you their money. And here comes the real problem affecting most Saas companies:

The sinking feeling when a free trial cancels or never logs back into the app again.

Do you hear the rumbling sound of that? It is the sound of churn – the single biggest plague killing Saas companies. And it happens more than often.

According to a research done by Intercom, 40-60% of free trial users of a software or Saas application will use it once and never return. This means that they have a very low Day 1 Retention rate, which has a dismal impact on the LTV/CAC ratio. Simply put: when your new users churn out, you bear all the CAC, and get no of the LTV. 

Source: kissmetrics.com

That stat is staggering but it only means that so many companies [ startups] miss opportunities  to turn free trials to activated users. Their free trial users leave without realising the value the software brings.

It doesn’t have to be that way, not for you. Activation determines your app’s revenue and revenue determines your app’s survival. Higher activation rates are within your reach.

The goal of this blog post is to help you understand what activation rate is and how to optimise it so that you can escape the plague, activate more users, and achieve increased growth for your Saas. 

In addressing this, we will look at the following:

  1. What is product activation point and activation rate?
  2. What is Product Activation Rate Optimization (PARO)?
  3. How to identify your activation point?
  4. Mapping out your onboarding flow
  5. Identifying where users are dropping off leading to churn
  6. Optimization strategies to achieve a higher activation rate

What is product activation, activation point and activation rate?

Product activation refers to the action that realises the value of your Saas or offering to the user.

It is the user’s first experience of success with your Saas. 

The action that demonstrates to the user why your app will positively transform their lives.

I would say this is the action that delivers the first big win for both you and the user.

The point in your funnel where this happens is called the activation point. It is at this point where you deliver the value you promised.

To be clear, the activation point is not your Aha! moment. The Aha! moment happens before activation. However, it could be that either one or several Aha moments lead a user to the activation point. (Read: The Aha! Moment Guide for Product Onboarding)

For example, if we use the case of a Taxi-hailing app like Uber or Lyft, we can have the user journey mapped out as follows to illustrate the Aha moment and activation point.

User creates an account > he requests a ride > he is able to watch the driver arrive with an ETA > the ride arrives on time (Aha! moment) > the trip begins when he gets in the car > he is dropped off at his destination safely (activation point) > makes payment > leaves a positive review

In the flow above, the user experiences the Aha moment as a perceived value. At that point, the car has arrived but remember for the user to achieve their first success, they have to safely get to their destination. 

When they do, is when they realise the value that Uber promised. This is the activation point after which the user is happy to make the payment and leave a positive review.

This brings us to the activation rate. This is a percentage of the number of users that activate to become paid users out of the total number of acquired users.

Simply, if you have 200 free trials and 40 people successfully activate to become premium customers, your activation rate is 20%.

What is Product Activation Rate Optimization (PARO)?

We already know what product activation rate is which makes it easier to define and understand what PARO means.

The most important word is optimization. When you optimize something you are trying to use the least resources possible to make a process more efficient. In the case of activation rate optimization, it just means identifying means to increase your product activation rate.

For instance, if your activation rate is 20%, what can you do to increase it to 25%, 30% and so on? 

Increased activation rates mean more activated users, higher revenues, increased growth and little churn.

This is the holy grail of Saas companies.

To understand product activation rate optimization, it is important to understand the fundamentals of optimization. These are:

Step 1: Identifying the problematic process that needs to be optimised. In our case, our problematic process is the onboarding funnel.

Step 2: Analyzing if the process is achieving the desired goal. If the desired goal is for our Saas activation rate to be 35% and we are currently at 20% then our analysis shows our onboarding flow is not meeting the goal desired.

Step 3: Auditing the process to figure out the problematic steps and come up with solutions for them. In our onboarding flow, our audit might reveal that some steps are problematic to the users making more of them to quit the onboarding process before reaching the activation point.

Step 4: Implementing possible solutions to these problematic steps, getting rid of unnecessary stages and making the flow as efficient as possible.

Step 5: Monitoring whether the new tweaks in the process increase or decrease the activation rates.

Step 6: Repeat.

In pursuing this article further, we are in agreement on step 1 and step 2 of the fundamentals which are: the onboarding flow is our problematic process and it does not achieve the desired goal. We would like to optimise it.

How to identify your activation point?

In order to be sure that the activation rate is not achieving the desired goal, we have to identify the activation point. This is the point where we would like to take users to as fast as possible to realise their first success using our Saas.

For Twitter, the activation point is when new users follow at least 30 people.

For Facebook, it is when users add 10 friends within 14 days.

For Trello it is when new users successfully create a new board and add a number of cards to the board.

Source: userpilot.co

We will expound on these shortly.

You need to know what your equivalent to following 30 people or adding 10 friends is. 

Most Saas product managers think they know the activation point without measuring. But you cannot know the activation point as a mere assumption.

Every activation point is guided by a metric which is driven by data.

Remember the example about Twitter’s activation point being new users following at least 30 people? What is 30? A number. Data. And Twitter didn’t just stumble on the number, they actually measured that.

Josh Elman, who was Twitter’s product lead for growth and relevance until 2011, analysed their usage numbers. He found out that once a user had followed 30 people, they were highly likely to be active forever. If Twitter didn’t get a new user to follow 30 people that person was very unlikely to return.

Facebook’s Vice President of Growth, Alex Schulz, when asked about the magic moment for Facebook while speaking at Y Combinator, he said: 

“Zuckerberg talked at Y Combinator about getting people to 10 friends in 14 days; that is why we focus on this metric. The number one most important thing in a social media site is connecting to your friends, because without that, you have a completely empty newsfeed, and clearly you’re not going to come back; you’ll never get any notifications, and you’ll never get any friends telling you about things they are missing on the site.”

When you have been taking users through a clear onboarding process and measuring the activation rate, getting the activation point should not be so hard because it’s in the data.

While this is true some of the time, sometimes there is a grey area. Your activation point might not be a single action but several actions, each of them activation points, that your users need to take to become customers. 

We know that some Saas applications are very complex.

Source: towardsdatascience.com

What might be realised value for one user is not the same for another user. 

Let’s take the example of Hubspot. It has several products including marketing, sales, CRM, and service hubs. It is possible User A activated after realising value in the CRM and User B after realising value in the Sales hub. 

A second example is Lemlist. It promises users that it will help them send cold emails that get replies. It is possible User A activates after successfully sending several cold emails in the free trial while User B only activates after getting replies from the cold emails sent.

The last example is Tidio, a chat and live chat solution that helps its users to create chatbots, live chat their customers and do email marketing. It is possible that user A activates after creating an automated chatbot, User B after sending out their first email campaign using imported contacts while user C only activates after deploying the live chat function on his website.

If you have a complex Saas like any of the three above, here is how to define your user’s desired outcomes and quickly find the activation point:

a).Talk to your activated users.

In the early days, Airbnb wanted to understand why the hosts who had signed up did, in order to create an onboarding process that drives new hosts to that activation point. So they walked door to door to talk to those hosts.

Walking door to door in the case of a Saas app is a bit insane. But you can conduct surveys, polls, video calls, and customer interviews at a small scale to understand why your premium users upgraded. What was the action or outcome in your app that did it for them?

b). Conduct A/B tests

Do you know that you can actually stage more than one version of your product with separate onboarding flows to understand where more users get activated?

Facebook does it all the time. Mark Zuckerberg once said that at any one time there were more than 10,000 versions of Facebook around the world. Credit to them and the resources to achieve such level of testing, but for a Saas small business, it might be unrealistic.

Source: berkeley.edu

Even so, you can do split testing on different user onboarding flows that have different activation points in order to know which one gives a better retention rate. 

This is where cohort analysis and segmentation of users is important. In cohort analysis, you group various users together in different groups in order to analyse their behaviours in your Saas app. 

Rather than look at your users as one unit, segmentation ensures you can test and measure to find which group responded better to which onboarding process.

c). Look deeper into your data

Again, the data point is coming up because it’s important for finding your activation points and moving forward with activation rate optimization.

Take a very deep dive into your existing customer data and onboarding process. The goal is to uncover those hidden features that your customer finds to be adding the most value.

You will see the value of this shortly under strategies that have been used in product activation rate optimization by other companies. 

At this point, we have the activation point(s) in place. It’s time to break down our onboarding process to discover opportunities to optimise our activation rates.

Mapping out your onboarding flow

This stage is quite simple. In order to perform product activation rate optimization, we have to dig into the current onboarding funnel.

When breaking down your onboarding flow, you need to focus on the aha moment and the activation point. Remember, the only reason we are breaking down this process is to analyse what the journey of our new users looks like before they REALISE the value of our Saas app.

Here are two quick examples:

Example 1: Airbrake is an application that monitors code to find and fix errors in a few minutes. Here is how they break down their onboarding flow:

  • User creates an account at Airbrake
  • They indicate the programming language they use e.g PHP, Javascript, Python, etc. 
  • They install and deploy lines of code in their application (aha moment)
  • Capture their first coding error (aha moment)
  • Mark the error resolved within a few minutes (activation point)

Example 2: Ghost.org is a modern publishing platform that helps its users to create and publish blogs. Here is how they map out their onboarding flow:

  • New user creates free trial on Ghost.org
  • Creates a blog
  • Sets up the blog
  • Publishes first post (aha moment)
  • Chooses a theme (aha moment)
  • Adds a domain name (activation point)

In a few clear steps both Airbrake and Ghost have gotten their users to the activation point while passing through more than one aha moment.

Have you broken down your onboarding process yet? Because the next step is crucial for product activation rate optimization.

Identifying where users are dropping off leading to churn

This step is the reason you will be doing optimization. This is the point where you learn why your activation rate is low. 

Once you mapped out your onboarding flow, you should have your data across the onboarding funnel. 

In the case of the Ghost.org example above, the onboarding funnel wasn’t always as indicated. Infact John O’Nolan, the Founder/CEO, has blogged about how they discovered cracks in their onboarding channels and found ways to fix them to increase activation rates.

In one instance, he describes how they discovered that while 90% of users would create a blog in step 2, only 60% would proceed to set it up in step 3. This indicates a drop off point for a large number of users in the onboarding flow. 

For Twoodoo, now closed, they detailed how they discovered drop off points in their onboarding process. One realisation was that most of their users dropped off when requested to fill in a long questionnaire at the sign up stage. Their activation rate was only 2% at this point. This is a huge drop off point that totally discouraged 98% of their free trial users.

Twitter had a huge problem in its early years. People would set up accounts and disappear. When Jake Stein of RJMetrics did an analysis of the Twitter data in 2010, he found out that a large percentage of Twitter accounts were inactive. 

About 25% of accounts had no followers. More importantly, about 40% of accounts had never sent out a single tweet

In these three examples, the apps used their data to find out where users were dropping off in the onboarding flow.

Right out of the gate, they found issues to resolve in order to optimise their activation rates, improve user numbers and achieve increased growth.

  • What is your data telling you? 
  • Do you have stage by stage conversion rates for your onboarding process? 
  • Are you seeing a huge drop in conversion rates at any particular stage of your onboarding process?

If you are not measuring the success of your onboarding flow, you won’t know what to work on for your product activation rate optimization. 

But here is what you can do right away:

  • Set up product usage analytics. It is simple, if you can’t measure something, you can’t improve it. We have written a detailed guide about How Product Usage Analytics Can Boost Engagement and compared MixPanel vs Google Analytics.
  • Do you know what actions are most important to get your user to the activation point? If you don’t, pick your activation point and work backwards or talk to your most profitable customers. Ask them what actions they took before becoming a customer. These are the actions you want to encourage others to take.
  • Setup your activation funnel to collect data
  • Track and measure steps in your onboarding flow. Find the steps where most of your users are dropping off.

Since you have now found the cracks in your onboarding flow, it’s time to patch up those cracks and increase your activation rates.

10 Product Activation Rate Optimization Strategies to Achieve a Higher Activation Rate

#1. Data collection from dropped users

You can take ages guessing why users are dropping off at a particular stage of your onboarding flow or you could just ask them. 

Are you able to call them? Do that. 

Alternatively, set up a short survey to find out why they did not complete a certain step in your activation funnel. If your step is correlated to a product feature, learn more about feature surveys.

If you have several ideas why they might not have finished that step, add those ideas in a poll and send it to them. The winning vote will give you a great perspective.

This is qualitative data directly from users who did not finish activation. They did not achieve their first success with your app and can provide invaluable insight.

There is no better data than this. It gives you the roadblocks right away so that you can get started sorting them out.

#2. A/B testing activation funnels

Carrying out A/B onboarding experiments is crucial to finding out which activation funnels have the highest retention rates. 

Design two activation flows. Test them on different segments of new users. Determine where you have the opportunity to do activation rate optimization.

Ghost.org carried out an A/B test to discover opportunities to optimise their activation rates. They added a step in their existing onboarding flow to find out if the activation rates would be higher.

The step added was to ask the user to add a custom theme to their blog. 

CEO John O’Nolan said that their activation rates jumped by more than 10 times. 

Source: ghost.org

Users who added a custom theme were 10 times more likely to proceed to the next step than users who did not. That translates to a 1000% increase in the conversion rate.

#3. Email Drip campaigns

If a user has created an account and only completed 20% of the onboarding process, logged out and did not return, how do you get them back? 

You create drip email campaigns to re-engage them.

These should be conditional emails that you send to users who forget to finish the funnel. By conditional it means that your email is based on “if this then that” logic depending on the stage where the user left the app. 

For example, if a user has completed step 3 but has not done step 4 then send email X on day X. 

In 2016, while running a technology blog, I was looking for ways to optimise revenues. I signed up at The Blogger Network (now Monumetric) but did not finish the onboarding process. Here is a drip email that I received: 

Amazing, right? By the way, I completed the application.

#4. Leading actions

To help users complete the in-app activation funnel, you can set up an onboarding process with leading actions that nudge them to the aha moments and eventually to the activation points.

For this to be achieved, you need to know which steps are related to the value discovery for your Saas app.

A good example of this is Close.io.

Close.io is a sales CRM for startups and small businesses. This is a crowded field with top notch players like Hubspot and Salesforce. 

Therefore, Close.io cannot risk losing any user because for what they do, there are more than 20 other alternatives in the market. 

They realised early on that for high activation and retention rates, they had to lead new users into a space where they see value. The most important stage being importing of contacts from CSV files into the CRM. Without the contacts, the value of the CRM is not achieved.

Source: cloudsponge.com

They designed their onboarding flow in such a way that new users will not be launched into the platform until they have imported contacts and set up an emailing address.

Every action of their onboarding process attempts to lead new users to these two aha moments which then help them realise the value of the Saas app.

#5. Show users desired outcome

Where you are able to show the new user their desired outcome, you should. This shortens your users’ time to value incredibly. The user is able to experience immediate value or even perceive it.

Canva are masters of this. 

Canva helps people to create beautiful designs of brochures, images, logos, presentations, etc. Xingyi Ho detailed the explanation while speaking to Appcues. 

They tested what activation rates would be if they onboarded people who said they wanted to design posters by showing them already designed posters to use as templates.

Source: canva.com

For posters alone, they were able to increase their activation rates by 10%. They used only 5% of new users to do the experiment.

#6. Provide examples or templates

When you need users to do a complex task in the activation funnel, it is better to provide them with a template which they can use to build what you want them to. 

Hubspot CRM for instance requires you to import contacts in a particular CSV format. However, this might be a complex process for some users who don’t know the format. 

The easy way for them is to get a sample CSV sheet with at least one row filled in with dummy data for them to follow.

#7. Personalisation

Personalisation creates intimate connections. There are various ways to personalise your activation funnel to increase your activation rates. For example;

  • Call users by their names e.g Hi Nancy, upload your contacts to proceed.
  • Tracking their actions during onboarding so that you send them personalised conditional emails if they don’t complete the activation funnel.

The Canva example earlier is a perfect personalisation strategy too. They only show poster templates to users who say they want to design posters. 

Netflix is many things including a Saas app.

In the app, they show you recommendations of movies and say “Because you watched movie X” we are showing you these other movies that are similar.

Make sure to read 4 Ways to Personalize Your User Onboarding Experience

#8. Gamification of activation flow

Gaming is addictive and very engaging. In fact, in a Saas application it can be a huge incentive to make your users come back. 

Gamification can be implemented through rewards and competitions. This makes the experience fun and playful. 

You can use coupons or step-related badges to reward users and encourage them to finish the next steps in the process. 

You can also send them drip emails with a progress report for that week. 

I use Duolingo to study French and my weekly report comes in with a gamified angle. Check below what I received last week:

It shows I earned less XPs than the previous week. There is more:

I spent a total of 1hr and 30 minutes in the app for the week, learning 16 new words and completing 23 lessons.

Generally the news wasn’t very good for me, so this made me work harder this week. I have more than doubled last week’s XPs.

As you can see, gamification has made me a returning user on Duolingo. Every time I can see the rewards, I am motivated to go back. How can you use gamification in your saas app?

#9. Little steps of progress

Does your onboarding flow have a step that requires the user to do a lot of work on their side for it to be achieved? Is it possible for you to break that action into small little steps of progress?

Always remember that customers are impatient. If they cannot achieve their goal quickly with you, they will drop off. 

If you make them do one big step that consumes their time, they will drop off too. 

Source: hopechannel.com

Therefore, break down your onboarding process and the huge steps into little steps that take a few minutes or seconds to complete. 

In addition, ask yourself if some of the time-consuming steps in your activation flow are necessary. 

  • Are you asking for information that you don’t need at this time?
  • Is the action you are asking your user to do correlated to their value discovery?
  • Can this action be simplified?
  • Can it be broken down into 3 or 4 little steps that take seconds to complete?

#10. Adjacent users theory

Adjacent users are users who signed up for your free trial but never successfully became engaged. 

As we have seen earlier, Twitter had this issue. So did LinkedIn and Instagram. 

In fact, I am part of the Twitter statistics.

These are users who got stuck somewhere in the activation flow.

What they need is to be helped out of where they got stuck. I would say you need to unstuck them.

Find out why they got stuck. Were there too many obstacles? Was it because of poor onboarding or lack of it?

The reason these adjacent users are important is because their insight will help you remove the roadblocks in your flow. 

In addition to that, it is widely known in Saas businesses that it is easier and cheaper to activate adjacent users than going after total strangers of your app. 

Try to read about adjacent users theory

Some of my favorite optimization strategies that can improve your product activation rate have to do with Psychology. 

Strategies like the Zeigarnik, IKEA, and Progress effects are crucial to product activation rate optimization. Luckily, Ali Shad has discussed them in much detail in app onboarding psychology

After reading this guide, you can go ahead with your PARO mission. Optimise, measure, repeat.

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