Optimizing for Growth

In my last post I spent some time talking about why we care about measuring retention rates, and tried to make the case that retention rate works as a meaningful measure of quality.

In this post I want to look at how a few key metrics for a product, business or service stack up when you combine them. This is an exercise for people who haven’t spent time thinking about these numbers before.

  • Traffic
  • Conversion
  • Retention
  • Referrals

If you’re used to thinking about product metrics, this won’t be new to you.

I built a simple tool to support this exercise. It’s not perfect, but in the spirit of ‘perfect is the enemy of good‘ I’ll share it in it’s current state.

>> Follow this link, and play with the numbers.

Optimizing for growth isn’t just ‘pouring’ bigger numbers into the top of theย  ‘funnel‘. You need to get the right mix of results across all of these variables. And if your results for any of these measurable things are too low, your product will have a ‘ceiling’ for how many active users you can have at a single time.

However, if you succeed in optimizing your product or service against all four of these points you can find the kind of growth curve that the start-up world chases after every day. The referrals part in particular is important if you want to turn the ‘funnel’ into a ‘loop’.

Depending on your situation, improving each of these things has varying degrees of difficulty. But importantly they can all be measured, and as you make changes to the thing you are building you can see how your changes impact on each of these metrics. These are things you can optimize for.

But while you can optimize for these things, that doesn’t make it easy.

It still comes down to building things of real value and quality, and helping the right people find those things. And while there are tactics to tweak performance rates against each of these goals, the tactics alone won’t matter without the product being good too.

As an example, Dropbox increased their referral rate by rewarding users with extra storage space for referring their friends. But that tactic only works if people like Dropbox enough to (a) want extra storage space and (b) feel happy recommending the product to their friends.

In summary:

  • Build things of quality
  • Optimize them against these measurable goals

7 thoughts on “Optimizing for Growth”

  1. Are there any reason to talk about “quality” in this context? It is hard to define, it isn’t an input variable to you calculation, and there aren’t necessarily any correlation with retention (you have postulated one, but not argued nor proven one). So why not just leave it out of you discussion (other than the term lends some credibility)?

    1. Hey Anders. Yes, my quite specific goal with this post is to make the metrics-led product/business-engine type thinking more meaningful to people who don’t have any exposure to this normally.

      I’ve met many people who care passionately about designing and building things of high-quality which have high-impact but who don’t have a mental model for how to measure if they’re achieving either of those things.

      Specifically at Mozilla Foundation this year, we have some team level targets which are Retention Rates. And for some people, that’s a pretty boring goal without context. With context, it actually relates to the things they care about already.

      The people who would have enjoyed this blog post if it were just a formula, wouldn’t have had much to gain from the formula itself.

      1. Sure but aren’t you deluding those people if you make them believe that if just the retention rate is high, what they have build must be of high quality? Just because retention rate is easy to measure or is important commercially doesn’t make it an indicator of quality.
        I’ll try to stop spamming you blog now. ๐Ÿ™‚

        1. This certainly isn’t spam, so please do keep digging into this conversation. ๐Ÿ™‚ Genuine critique is valuable and the reason I enable comments on this blog.

          I think where we’re not aligned is on a definition of quality, so want to check the rest of the ‘argument’ first and then dig more on the ‘quality’ definition.

          Do we agree that ‘retention rate / loyalty rate’ is a way to measure if people keep using a thing over time? And if people keep using a thing it can be assumed to be providing them with some value? Noting that there are certainly cases where the value provided is subjective (say an addictive but enjoyable game that keeps you from playing with your kids).

          Please say if not, but otherwise I’d love to talk more about ways to measure quality.

          1. I don’t think a thing being “enjoyable” or “providing value” infers that it is of good quality. McDonald’s, American Idol, and Crack presumably have great retention, but probably won’t be labeled quality by all (you could say they have quality retention, but then, I think, your argument becomes circular). But again, you seem to be interested in retention or providing value and that’s perfectly fine, I just think you should leave quality out (since that term can have multiple definitions).

          2. Sorry for dropping the thread of this conversation, I was on holiday but did mean to continue it.

            I think we’re at the crux of our differing views here, and it comes down to the ‘won’t be labeled quality by all’ sentiment. My suggestion that retention is a good measure of quality includes the assumption that quality is defined by the end user, and not by me. Whether I think something is of quality doesn’t really matter (unless it’s a thing built for me and people like me).

            So to work with those examples:

            American Idol (or The X Factor in my language ;)) is not a show that generates quality music (hence that lack of retention by winners of the show). But if you judge it by other criteria, the Show‘s very high retention rate makes much more sense: If you’re not actually very passionate about music, but you like human interest stories and being able to join in the recurring water-cooler conversations with people in your social circles, and you want a consistent TV consumption experience at a consistent time that kinda works for most of the people who might be in the room, and so on… this show (or more accurately this ‘Format’) is a thing of high quality. Personally, I hate it, but I don’t think my opinion reduces it’s quality.

            Likewise for McDonald’s and Crack, you just have to find the frames through which people evaluate these things for themselves. Quality relates to an individual’s values even if those values are formed in tragic circumstance, like they can sadly be with Crack.

            When comparing the quality of McDonald’s to Le Manoir aux Quat’ Saisons you can’t just consider the food. Even if you happen to care a lot about food. One of the most pressing and emotional challenges many people face on a regular basis is quickly feeding hungry grumpy children during the stress of a day full of other pressures including financial worries while still trying to give their children an experience they enjoy. I’d love to fix a bunch of the social pressures that result in that being such a common problem (and I’ve been that parent too) but until then, McDonald’s offers something of quality to many people – that’s why they go back. In this case I find it makes more sense to think of McDonald’s as a service than a restaurant.

            I do see how including ‘quality’ in the content of this post complicates things, but I still think it adds value. Retention rate on it’s own is abstract, and building something with a high retention rate is dependent on building something of high quality. Even if it’s a high quality solution to a problem I would rather didn’t exist.

            Perhaps the other thing to call out is that a high-quality ‘thing’, can be made up of some low quality constituent parts so long as they don’t impact negatively on the cumulative result.

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