“Not only do we construct our own society, but we accept it as it is because others have created it before us. Society is, in fact, habit.” – William Little
We’ve introduced Behavioral Design, and focused in on the techniques that create user habits. We’ve explored the CAR Model, the mechanism behind these techniques that uses positive reinforcement to increase user engagement and retention.
Now, let’s explore the business case for user habits, and how your team can structure itself to build habit-forming products. In this post we explore why, of all the outcomes Behavioral Design can give, you and your product team should care about user habits first. Next, we review the benefits you can realize for building a habit-forming product.
Habits: automatic behaviors that you’ve learned over time, from experience.
Much of our daily behavior and decisions are run by our brain’s autopilot and our Habit System. These automatic decision making systems allow us to reserve precious mental resources while we “zone-out” for much of our own behavior. All of your habits were learned in some form or another. They were programmed, either implicitly from the structure of reality, or explicitly by society or by businesses via advertisers, marketers, and Behavioral Designers.
Your morning Starbucks. Your radio station presets. Your Netflix favorites. The websites or app you open when you have free time. All of these places, brands, and apps intentionally go out of their way to become a part of your daily routine. To be another waypoint for your neurological autopilot.
Social Media: A Simple Field Experiment
Conduct a little field research of your own, you burgeoning scientist you. The next time you step into an elevator with other people in it, pay attention to their behavior.
As the elevator begins to fill with people, notice as something inevitably happens: people get their phones out. Not because someone ringed or they received a message, but because they’re uncomfortable being jammed in there with strangers. We’re willing to bet that in this moment, they pull out a small escape: their smartphone. Crisis averted.
Now, what apps do they open? Where to does their attention go?
We’ll hazard a guess: it’s social media.
Over the past few years, social media apps have fought hard to be the default action people take when seeking escape. To temporarily relieve anxiety, stress, boredom, or loneliness. Social Media has successfully used the CAR Model to associate our negative emotional internal cues with the action of opening their apps. So when people experience these feelings, these apps are programmed defaults.
Social media has successfully programmed an autopilot response for the masses. Temporarily feeling the itch of the Human Condition? There’s an app for that! While there are serious incentive and ethical alignment problems with this practice, it’s nevertheless been an extremely lucrative Behavioral Design pattern.
And the same things that worked for them will work for you.
The CAR Model isn’t unique to Social Media and didn’t work for them because they had a lot of money or some product feature. CAR worked for them because it’s a general operating principle of human brains. Your app is no exception. You can become a daily, ingrained part of how people operate when they’re on autopilot. Your product, using Behavioral Design, can be a daily user habit. Another of the apps, services, and brands that are so quotidian to us that they’ve earned their own verb.
Tangible Gains: How Behavioral Design Drives Key Business KPIs
Let’s outline the business case for Behavioral Design. Why it pays for your product to be on user autopilot. At Boundless Mind, our customers see gains in 4 key performance indicators (KPIs):
- Lifetime Value and Customer Acquisition Cost
- Referrals and Virality
- Loyalty and Retention
- Conversion to Paid Customer
Do these metrics sound familiar? Let’s go through them one-by-one:
Lifetime Value and Customer Acquisition Cost
The Lifetime Value (LTV), or Customer Lifetime Value (CLTV), is measured as the total value a user, or customer, will bring in during their time using your product. It’s calculated by taking the average revenue per account (ARPA) and dividing it by your churn rate. LTV is a critical metric to measure business health and forecast growth of monthly recurring revenue (MRR).
The metric most commonly paired with LTV, is CAC, or Customer Acquisition Cost. For a business to remain healthy, their LTV needs to be higher than their CAC. With this is mind, businesses actively work to increase their LTV by lowering churn and by selling more into their current customer base, and work to lower CAC with lean marketing tactics and increasing conversion of new users to paid customers.
So how does Behavioral Design affect these metrics?
When you app makes the transition to a user habit, the odds of that user leaving are greatly reduced. Apps that successfully form user habits see lower churn and higher conversions to paid subscriptions. Both of these results increase your LTV. Behavioral Design can also lower CAC. If you implement it in the initial trial or onboarding phase, you will see increased conversion from new to recurring users and shorter time to convert to paid. Converting more users, faster means your marketing budget has a higher impact, and your cost per user goes down.
Why else does LTV matter?
LTV has been referred to as a “king” of app metrics, because it is the thermometer to tell you if you business is healthy. The higher your LTV, the more you can spend on marketing and sales. For B2C companies, this spending typically in marketing around acquisition, but for enterprise and B2B companies, they must also factor in additional costs of sales and account management. LTV is king, strive to increase a high LTV.
Referrals and Virality
When your app employs Behavioral Design to induce user habits, your users will do more than just return more often: they’ll evangelize your product. As your app becomes a part of someone’s daily life, they’ll begin drawing their community into your product to share their great find.
Why do they do this?
Habits are very powerful and when a product becomes habitual, we form attachment and ownership to it. Your users will feel like your product is theirs. It’s their escape, their motivator, their comfort, etc. In the same way people share photos of their cats, cars or kids, they will want to share their pride in your product.
Peer referrals fuel viral growth and are a leading signal of product-market fit. The ultimate goal if to form a habit as quickly as possible, and then get the user to refer a friend–this is called a viral loop. Shorting viral loops have exponential payback in terms of organic growth and new user acquisition. Tracking referrals as a KPI will give you greater insight into how your Behavioral Design efforts are driving growth on both a per-user and between-user basis.
Loyalty and Retention
To engineer a new user habit is literally to engineer your future usage, or, to deliberately design your future loyalty and retention. Teams that take Behavioral Design seriously design for habit formation, and in doing so put up a strong defense against other products competing for their users’ attention.
How else does loyalty and retention help?
Flexibility. Products with loyal users have a lot more flexibility to experiment with the product, change pricing and wovercome failures. One of the best ways to measure loyalty is to change your pricing. If your user base is loyal, you can adjust pricing as the business needs without too much backlash. However, a fickle user base will have a higher rate of attrition. In the fast moving, ever changing landscape of technology having flexibility and loyalty is a huge leg up to staying ahead of the competition.
Conversion to Paid Customer
Converting trial or free users to paid is essential for SaaS businesses. For time-limited trial apps, forming a user habit quickly is essential for user to continue use past the free trial. For “freemium” apps, where users keep a scaled back version of the product forever, product teams need to increase usage to the level requiring paid features.
Both of these revenue models experience difficulty crossing that threshold from free to paid. Team’s tinker endlessly with their UX, pricing, trial length, etc. in hopes of finding that silver bullet for conversion.
For most products, there is not one thing in their interface or package that needs changing. What’s missing is, you guessed it, user habits. Forming a user habit, and doing it quickly, increases the chances of conversion to paid for timed-trial and freemium. With a strong foundation of Behavioral Design, you can experiment on your product, package and/or pricing to further boost conversion metrics.
Building User Habits is Good Business
When building new products, new features or new services, keep user habits in mind. Using the business KPIs above you now have a good framework to measure the impact of Behavioral Design on your business. If you want to get started with Behavioral Design, drop us a line at: firstname.lastname@example.org.