It's common to see a set of metrics move in opposite directions.
For instance, increased traffic that converts less in eCommerce or trial usage of a SaaS product that leads to a lower downstream retention rate. Or, if you offer promotions which increases transactions but with lower $ per transaction. Conversely, removing low-quality supply in a marketplace can boost overall conversion and gross merchandise volume (GMV).
In these cases, it's important to analyze the opposing metrics together and observe the net change. It's also useful to break them down by segments to determine if the drivers of the opposing metric movements are universal or localized to certain segments.
Consider the example of a growth in new customers over two months, but with a corresponding reduction in retention rates from 50% to 47% (-3.2%). By expressing total retained customers as a product of new customers and retention rate, you can get a more instructive view.
This analysis shows that while retention is down by 6% (-0.94 month over month), since new customers grew by 12% (1.12), the total retained customers is up by 5% (1.12). These ratios exactly multiply: 1.12*0.94 = 1.05 or 5% relative net growth.
Therefore, despite lower retention rates, the 12% growth in new customers ultimately results in a net positive 5% growth for retained customers. Next, you can break down the data by channels. This reveals that inbound and sales channels which saw the greatest new customer growth rates and experienced lower retention do net out positive growth in retained customers.
Furthermore, the retention drop was also experienced by the organic channel which did not experience a growth in new customers, suggesting that increased, less qualified traffic may not be driving the retention drop.
Then, you can analyze the data further by market/city. This confirms that the pattern is widespread, indicating that a growth in new customers does not necessarily imply lower quality. In many cases, retention rates have also increased or stayed flat alongside new customer growth.
Using equations to express how a business operates is powerful. Software that can operate on the data seamlessly and provide efficient and effective answers makes everything a little bit easier and clearer.
