Understanding Activation Rate and Building Your Growth Model

Understanding Activation Rate and Building Your Growth Model

Introduction:
Activation rate is a crucial metric that measures the success of a product's onboarding process. It indicates the percentage of users who have reached the activation milestone compared to those who have completed the signup flow. A good activation rate should be highly predictive of long-term value delivery and also actionable for growth teams to make improvements. In this article, we will explore the significance of activation rate, common mistakes in setting the activation point, and actionable advice to improve activation rates.

The Importance of Activation Rate:
A good activation rate should not only predict long-term retention but also monetization or both. Users who hit the activation milestone should retain at a rate at least 2x better than those who do not complete the activation step. It is important to note that activation is not the act of becoming a long-term customer but a leading indicator of a new user sticking around and becoming a customer. Defining activation as either sign-up or multiple purchases defies the purpose behind an activation metric.

Average Activation Rates:
Broadly, the average activation rate is 34%, with a median activation rate of 25%. For SaaS products, the average activation rate is slightly higher at 36%, with a median of 30%. Being in the 60th percentile is considered a good activation rate, while being in the 80th percentile is considered great. It's worth mentioning that marketplaces and e-commerce companies tend to have lower activation rates because they define their activation milestone as the first transaction, which requires spending money. On the other hand, B2C freemium products have higher activation rates as their activation milestones are low-friction actions like starting a meditation session or logging a meal.

Actionable Advice to Improve Activation Rates:

1. Simplify Onboarding UI/UX: One of the most common pieces of feedback from successful growth teams is to simplify the onboarding process. Reducing the number of steps, removing distracting CTAs between sign-up and activation events, and improving the order in which tasks are presented can make a significant difference in activation rates. Additionally, removing obstacles in the onboarding process and improving the time to value can help users achieve activation faster.

2. Implement Effective Emails and Follow-up Communications: Sending follow-up emails and push notifications can be effective in guiding users towards activation. Providing product education during sign-up and clearly defining who the product is not for can help set proper expectations and filter out users who might not find value in the product. Additionally, personalized onboarding experiences, such as one-on-one Zoom onboarding sessions or calling users who did not complete the onboarding process, can greatly impact activation rates.

3. Smarter Top-of-Funnel Targeting: Improving the quality of leads at the top of the funnel can have a significant impact on activation rates. Shifting away from generic platforms like Facebook to more targeted platforms like Indeed for finding applicants, and better product education during sign-up on who the product is not for, can help attract users who are more likely to activate and find value in the product. Additionally, building features that enable collaboration among users from the same company can lead to higher engagement and activation rates.

Building Your Growth Model:
To build a successful growth model, it is essential to understand the core purpose of the product and the problem it solves for users. This understanding will help in defining the what/who/how/frequency of the product. Once the purpose is defined, the next step is to build a funnel that breaks down the product into specific skills or tasks that users need to understand to get the most out of it. The initial focus should be on the "hook" that intrigues users and encourages them to explore the product further. Over time, additional features can be built to guide users towards more advanced steps and deeper engagement.

Conclusion:
Activation rate is a crucial metric that indicates the success of a product's onboarding process. By setting the activation milestone correctly and implementing actionable strategies, growth teams can improve activation rates and drive long-term value delivery. Simplifying onboarding UI/UX, implementing effective emails and follow-up communications, and targeting the right users at the top of the funnel are three actionable pieces of advice to improve activation rates. By continuously experimenting and monitoring metrics, growth teams can optimize their activation metric and achieve long-term success.