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Estd 4.22.2023
In the competitive SaaS landscape, acquiring users is just the beginning. The real challenge—and ultimate driver of sustainable growth—lies in keeping those users engaged over time. This is where product stickiness and habit formation become crucial metrics for success.
For SaaS executives looking to build lasting businesses, understanding how to properly measure and influence these elements can be the difference between a product that users abandon and one they can't imagine living without.
Understanding Product Stickiness vs. Habit Formation
Before diving into measurement, it's important to distinguish between these related but distinct concepts:
Product Stickiness refers to how difficult it is for users to abandon your product once they've adopted it. Sticky products create high switching costs—whether functional, financial, or emotional—that discourage users from moving to alternatives.
Habit Formation describes the process by which product usage becomes an automatic behavior pattern for users. Habitual products become integrated into users' routines to the point where usage is triggered without conscious decision-making.
While stickiness can be achieved through various mechanisms (like data lock-in or network effects), habit formation specifically focuses on psychological patterns that drive consistent, repeated engagement.
Key Metrics for Measuring Product Stickiness
1. Retention Curves
Retention curves track the percentage of users who return to your product over specific time intervals. According to Amplitude's 2022 Product Report, best-in-class SaaS products maintain 35% user retention after 8 weeks, while average products see just 15-20%.
To measure this effectively:
- Plot user cohorts by acquisition date
- Track their return rates over days, weeks, and months
- Pay special attention to the curve's "flattening point"—where retention stabilizes
The shape of your retention curve reveals valuable insights: a curve that flattens at a healthy percentage indicates strong product stickiness.
2. Net Revenue Retention (NRR)
For SaaS executives, NRR is perhaps the most telling financial indicator of product stickiness. This metric captures revenue from existing customers over time, accounting for expansions, contractions, and churn.
According to KeyBanc Capital Markets' SaaS survey, top-performing companies maintain NRR above 120%, meaning their existing customer base grows in value even without new customer acquisition.
3. Expansion Revenue Percentage
This metric measures the portion of new revenue coming from existing customers through upsells, cross-sells, and increased usage.
If your expansion revenue consistently represents a significant portion of total revenue growth (30%+ for mature SaaS businesses), it indicates strong product stickiness and customer satisfaction.
Measuring Habit Formation
Habit formation requires more nuanced measurement approaches that focus on usage patterns rather than simple retention.
1. Frequency and Interval Analysis
Examine how often users engage with your product and the typical intervals between sessions:
- Daily Active Users/Monthly Active Users (DAU/MAU): According to Facebook's early benchmark, a ratio above 50% indicates strong habit formation.
- Average Sessions Per User: Track how this evolves over the user lifecycle.
- Time Between Sessions: Look for consistency in return patterns that align with expected use cases.
2. The Habit Index
Developed by Nir Eyal, author of "Hooked," this calculation helps quantify habit strength:
Habit Index = (% of users who return on their own) × (% who return multiple times) × (% who find the product useful)
A high Habit Index suggests your product has successfully embedded itself in users' routines without requiring external prompts.
3. Feature-Level Engagement
Not all product features are equally important for habit formation. Identify your product's "habit loops"—the core actions that drive repeated engagement:
- Track the usage frequency of specific features
- Measure completion rates of key workflows
- Identify which features correlate most strongly with long-term retention
According to research by Product Analytics firm Mixpanel, users who engage with at least 3 core features during their first week are 4x more likely to be retained long-term.
Advanced Measurement Techniques
Cohort Analysis by Activation Quality
Group users based on how thoroughly they completed your activation process, then compare their long-term retention:
- Users who completed all recommended onboarding steps
- Users who partially completed onboarding
- Users who skipped onboarding entirely
This analysis often reveals that thorough activation correlates with stronger habit formation and stickiness.
User Journey Mapping
Create visual representations of how users navigate through your product over time:
- Map typical paths that lead to habitual usage
- Identify potential drop-off points where habit loops break
- Compare journeys of retained vs. churned users
This qualitative approach complements quantitative metrics by revealing why numbers change, not just how much.
Practical Implementation for SaaS Executives
1. Establish Your Baseline
Before implementing changes, document your current metrics to establish a baseline:
- User retention at key intervals (7-day, 30-day, 90-day)
- Feature adoption rates
- Usage frequency distribution
- Current NRR and expansion revenue
2. Set Clear Targets
Based on industry benchmarks and your business model, define success metrics:
- For transactional products: target higher frequency with moderate session duration
- For utility products: target moderate frequency with deeper engagement per session
- For collaborative products: focus on network effects metrics alongside individual usage
3. Implement Measurement Infrastructure
Ensure your analytics stack can capture the necessary data:
- Event-based analytics that track specific user actions
- User segmentation capabilities
- Cohort analysis tools
- User feedback collection mechanisms
4. Create Feedback Loops
Connect your measurement system to product development:
- Regular review of stickiness and habit metrics
- A/B testing framework to validate improvement initiatives
- Clear ownership of key metrics among product teams
Case Study: Slack's Approach to Measuring Stickiness
Slack, now valued at over $27 billion, famously focused on a unique stickiness metric: messages sent per user. Rather than tracking simple login rates, they measured meaningful engagement.
According to former Slack Director of Product, April Underwood, their "magic number" was 2,000 messages. Teams that exchanged 2,000+ messages were significantly more likely to continue using the product and expand usage throughout their organization.
This metric guided Slack's product development priorities, helping them build features that enhanced communication rather than simply drawing users back to the platform.
Conclusion: From Measurement to Action
Measuring product stickiness and habit formation is not merely an analytical exercise—it's the foundation for strategic product decisions that drive sustainable growth.
The most successful SaaS companies use these metrics to:
- Identify which features truly drive retention
- Optimize onboarding to establish crucial early habits
- Design product improvements that strengthen habit loops
- Allocate resources to initiatives with the highest impact on long-term engagement
By focusing on these deeper engagement metrics rather than surface-level growth numbers, SaaS executives can build products that don't just attract users—but become indispensable parts of their professional lives.
Remember that the ultimate goal isn't to make your product addictive, but rather to make it so valuable that users naturally incorporate it into their routines. When measurement is aligned with genuine user value creation, stickiness and habit formation become indicators of a truly successful product.