What is Product Adoption Rate?
The Product Adoption Rate in SaaS measures the percentage of new users who become active and engaged with a product or feature in a specified timeframe.
The product adoption rate is a user engagement metric, calculated by dividing the number of new users who adopt the product by the total number of new users, expressed as a percentage.
How to Calculate Product Adoption Rate
Product adoption refers to the progression scheme by which consumers (and enterprises) become familiar with a particular product or application.
Once adept at navigating the interface and accessing the product features, the user can start to derive more value from the tool itself and achieve their objectives at a much higher efficiency.
The term product adoption is distinct from the activation rate, as the latter refers to a single event in the initial stage of the product lifecycle.
In contrast, user adoption occurs from a user decides to completely integrate a product into their day-to-day workflow on the job.
Product adoption can be conceptualized as the inverse of customer churn. But in actuality, the retention rate is the inverse of the churn rate.
On that note, the higher the product adoption rate, the higher the customer retention (and lower the churn rate).
If the customer churn rate is high, customers are lost because the product falls short in delivering sufficient value (and meeting customer needs).
Therefore, companies must prioritize contributing continuous value to their customer base to acquire repeat, long-term customers and generate recurring revenue.
The step-by-step process to calculate the product adoption rate is as follows:
- Step 1 ➝ Define “Active User” (Criteria)
- Step 2 ➝ Determine Number of New Active Users
- Step 3 ➝ Divide New Active Users by Total Number of Sign-Ups
Product Adoption Rate Formula
The product adoption rate is the number of new active users divided by the total number of sign-ups, expressed as a percentage.
Since the product adoption rate is expressed as a percentage, the output must be multiplied by 100 to convert the metric from decimal notation to percentage form.
Newly acquired customers are the targets for a company’s revenue expansion strategies via upselling, cross-selling, product bundling, and implementing new features.
How to Improve Product Adoption Rate
The common strategies that companies utilize to improve upon their product adoption rates are as follows:
| Strategy | Implementation Details |
|---|---|
| Simplify Onboarding |
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| Communicate Core Values |
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| Collect and Act on User Feedback |
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| Optimize User Experience (UX) |
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| Improve Customer Support |
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| Use Targeted Marketing and Education |
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| Implement Gamification Elements |
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| Establish Community |
|
Product Adoption Rate Calculation Example
To illustrate the calculation of product adoption rate in SaaS, suppose we’re tasked with calculating the adoption rate on behalf of a SaaS company that recently launched a new project management tool and tracks user adoption across a 30-day period after the initial sign-up stage.
The total number of new sign-ups in August 2024 was 1,000, while the number of new active users was 250.
- Total New Sign-Ups = 1,000
- New Active Users = 250
The term “active users” is contingent on the company and must be understood to comprehend and analyze the data set.
The product adoption rate is 25%, which was determined after dividing the new active users by the total number of sign-ups.
- Product Adoption Rate (%) = 250 ÷ 1,000 = 25.0%
The product adoption rate of 25% implies that out of 1,000 new sign-ups, 250 users became active within the 30-day period.
The fact that 25% of new users perceived value in the product and integrated the tool into their workflow reflects strong user engagement, but the industry benchmark must be considered.
In closing, the periodic measurement of the product adoption rate facilitates data-driven decisions by SaaS companies to improve the user experience (UX), enhance product features, and ultimately drive revenue growth.
