How to Calculate Adoption Rate and its Impact on Customer Lifetime Value
If your customers aren’t using your product, then they’re not really your customers. They may have subscribed, but if they’re not actively engaging with the product, they’ll never see the value of their investment. And without a clear return in sight, they’re a churn waiting to happen.
That’s why it’s important to understand how to calculate adoption rate. This critical phase of the customer journey deals with how well a customer integrates your product into their business process and whether they are using the right functionalities to realize lifetime value. Get the adoption phase right and you’ve created a recurring customer.
How to Calculate Adoption Rate
You have to set standards for the level of engagement you feel qualifies as successful adoption. It will be different for each business based on the nature and complexity of their application. Whether you aim for 80% of licenses within an account to become active daily users or for an individual to use a specific feature on at least 8 unique occasions over 2 weeks, how you define adoption will govern the accuracy of your adoption rate calculations.
Once you’ve determined your standards for adoption, be sure you can accurately track your customer’s product usage. The best way to do that is by employing a customer success platform that records, compiles, and prioritizes customer data across the entirety of their journey. Every point of contact your customer has with your business offers insight into their experience. A customer success platform can gather these insights into a visual, hierarchical, and actionable presentation.
The detailed nature of an effective customer success platform lets you create and monitor your adoption rate for several different elements, including:
- Product access
- Usage time
- Feature usage
Which brings us to the actual math.
Calculating Customer Adoption Rates for Product Access
One of the simpler metrics available, this is the number of unique daily logins, divided by the number of purchased licenses that have adopted the overall product. Here’s the equation:
Adoption Rate = Number of Unique Daily Logins ÷ Number of Purchased Account Licenses
So, 80% of potential users are accessing the product in some form every day if you have 800 daily logins and 1,000 total purchased licenses.
You can alter the time parameter out to weeks or months depending on the intended usage pattern of your product. This final count can then be compared to your previously established definition of successful adoption to determine the health of your customer success efforts.
This rate should be monitored and compared over time to give you an active and ongoing insight into your customer’s product usage. It can be a valuable early warning metric, as any sort of negative movement can indicate the customer is not seeing value from your product.
Calculating Customer Adoption Rates for Depth of Usage
This metric offers insight into customer adoption by determining how much time a customer spends using your product. The metric can be used to determine an individual’s average time spent in the application or as an overview of how much time the average user spends with the product per login. Make sure your data only accounts for active application time where the product is in use and not just left idle on an inactive window.
To calculate this metric:
Average Time Spent in App Per Login = Amount of Active Time Spent in App Per Week ÷ Number of Logins Per Week
Which means that a customer typically spends 30 minutes in the app every time they login if they are active for 1,200 minutes and login 40 times a week. Again, this metric can be compared with the desired usage time and monitored continually.
Calculating Customer Adoption Rates of Feature Usage
This metric is similar to our first product access model, but feature usage is more about determining actionable next steps whereas product adoption rate is best for identifying overall business trends. You can measure for the number of times a feature is accessed per day/week/month or for the number of times it is accessed per login. Each offers a separate insight into customer behavior and should guide your customer success efforts. For example, if a user is regularly accessing your product but not a specific feature, then they may benefit from an educational campaign about the benefits of said feature.
For the latter model, your equation would look like this:
Feature Adoption Rate = Number of Times X Feature Accessed ÷ Number of Logins Per Week
So, the feature adoption rate would be 14% if the customer uses a certain feature 7 times and logs in 50 times a week.
Overall, the findings of these metrics should guide your customer success efforts toward successful customer adoption. Remember, these different metrics are often used to complement each other, so don’t feel confined to using just one method to calculate adoption rate.
Maintaining Positive Customer Lifetime Value
Successful adoption leads to increased customer lifetime value (CLV). If your product usage and adoption rate calculations are telling you that a customer is losing interest, it’s time to implement some CLV boosting strategies, such as:
- Keep Communicating: One of the key elements of a success adoption phase is establishing trust with your customer by consistently engaging them. Use surveys, share blog posts, offer industry insights, and become a regular on their weekly call list.
- Demonstrate Your Product’s Value: Generate welcome messages, tooltips, and tutorials in small, digestible pieces to show how your product works. As your customer relationship deepens, introduce mini launches to demonstrate additional features. Anytime you can provide a practical example of how your product fits within your customer’s business, you reveal new value.
- Set Goals: Establishing achievable goals early in the adoption phase creates momentum during the customer journey and highlights the value of your product or service. Send emails or messages every time one of your agreed goals is achieved to build a positive relationship.
- Look to the Future: Continually address your product’s ability to grow alongside your customer and provide examples of future features and products that will aid them once they grow in scale or complexity. Future success is a powerful incentive.
Why the Adoption Phase Matters
Regardless of any financial agreement, your customer is only your customer if they’re engaged with your product. The adoption phase of the customer journey is all about promoting and maintaining that engagement. It’s an opportunity to nurture your customer and establish customer lifetime value.
If you effectively calculate the adoption rate of your customer, you will be poised to create a long-time, recurring relationship. Be it a measure of their product usage, feature usage, or a count of their time spent within your application, you need an insight into your customer’s everyday experience in order to achieve success.
Totango empowers your customer success goals by helping you accurately and efficiently track your customer’s product adoption. Request a demo or explore Spark to start building a customer-centered business today.