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We're sharing a guest blog post from our community EIR Blake Hirt on how activation is often one of the most underrated growth levers. This was previously shared as a post in the community here.
Thanks for all of the great feedback on my last deep dive post (here). I’m sharing another post covering activation, which is something I’ve found myself regularly discussing with founders that are reaching out about growth. I’ll cover what activation is, why it’s important, examples, and actionable tips so you can apply it to your marketplace.
When people think about "growth", they typically think about acquisition. Running paid marketing ads, finding channel partners, partnering with influencers, improving SEO, and increasing virality can all be part of the growth playbook. Yet acquisition is only one part of a comprehensive growth strategy.
One component of growth that is often underrated and under appreciated is activation. Not only can improving this part of your growth funnel drive significant growth, but it can do so in a much more sustainable way than acquisition, especially as channels degrade and you’re forced to find users with lower and lower intent.
In this post, we’ll dive into what activation is, why it’s important, and how you can start improving it for your marketplace.
Activation, often referred to as onboarding, is in the middle of your growth funnel. The definition may change depending on the nuances of your marketplace, but typically it’s the phase when a new user goes from signing up to executing their first transaction on your marketplace.
Growth funnel:
While there is often an obsession with acquisition when it comes to growth, signups are worthless if they don’t actually start engaging with your marketplace.
According to a study by Userpilot, activation has the highest impact on revenue growth of any stage in the funnel. A 25% increase in activation rate increases monthly recurring revenue by 34%, higher than both acquisition and retention. This study was done on B2B SaaS companies, but it’s still highly relevant for marketplaces.
Additionally, improving your activation rate results in much more sustainable growth than spending more on acquisition.
Let’s take a simple example of a company who has the following weekly metrics:
In this case, we spent $1,000 to acquire 100 new transacting customers, resulting in a $10 CAC.
Now, let’s assume we are looking to double the number of new weekly transacting customers. We can, of course, increase our marketing spend. All else equal, by doubling our spend from $1,000 to $2,000, we’d get 2,000 new customer signups and 200 new transacting customers, keeping CAC at $10.
Alternatively, we could increase our activation rate by improving the user onboarding experience. If we could do so in a way that increased our activation rate from 10% to 20%, we’d acquire 200 new transacting customers without increasing marketing spend at all, resulting in a $5 CAC.
This is extremely powerful both for scaling purposes and for ensuring sound unit economics. And of course, all of these principles apply to both sides of the marketplace.
While doubling your activation rate is not easy, it’s very possible. I’ve done it with multiple companies, including Uber and Gopuff.
At Gopuff, I recreated their driver onboarding experience, which increased their activation conversion by 134%, saving them $XXM per year in driver acquisition costs.
At Uber, the Houston government passed the most onerous regulations in the nation for becoming a driver, substantially increasing the number of steps involved, and our activation rate fell by 75%. We would have had to 4x our marketing budget to counteract the damage, which was clearly unsustainable.
Instead, the team and I focused relentlessly on repairing our activation rate. After a couple months of effort, not only did we get back to our previous activation rate, but we surpassed it, becoming the highest converting city in Texas, over other cities who didn’t have such burdensome regulations to deal with. By the end, we had increased our activation rate by 5x from the bottom.
This topic warrants a designated deep dive, but there is a basic equation to follow:
Activation rate = Motivation - friction
Basically, you want to increase a user’s motivation to convert while decreasing the friction that prevents them from converting.
Tactics for increasing motivation could include a great value prop or hook, user testimonials or ratings, educational content, or showcasing awards your company has won.
Tactics for reducing friction could be removing unnecessary steps, auto-filling certain information, adding visual cues, or making it easy to contact customer service.
In some cases, additional friction can be helpful, but it’s more the exception than the rule. Some examples could include longer intake forms to build credibility and personalize the experience, or background checks on the supply side to build trust and safety.
You also want to make sure you’re focused on the parts of your funnel that have the most upside. Your onboarding experience might have 5, 10, or 20 different steps. You don’t need to improve every step. Focus on the ones with the biggest drop-off, get qualitative feedback from users to understand why that step is causing so much drop-off, and then experiment relentlessly.
By now, I hope you’ve thought about your onboarding strategy and how you could improve your activation rate. If you haven’t put much focus into measuring it, let alone improving it, I think you’ll be pleasantly surprised by the results of some focused attention.
I’ll leave you with this wonderful quote from Casey Winters, one of the most respected marketplace growth experts:
"Onboarding is both the most difficult and ultimately most rewarding part of the funnel to improve to increase a company’s growth. And it’s where most companies fall short. By focusing on your onboarding, you can delight users more often and be more confident exposing your product to more people."
Let me know if you have any questions or even learnings around activation from your own experience so we can discuss it in the replies here below.
You can connect with Blake to discuss this post in the Everything Marketplaces community here. A big thanks to Blake for also being an active EIR in the community, where he is often sharing his marketplace experience, insights, and helping early stage founders.
