Is it better for Betterment to focus on increasing assets under management or improving customer retention rates?

Introduction

The trade-off between increasing assets under management (AUM) and improving customer retention rates is a critical decision for Betterment's growth strategy. Both options have significant implications for the company's financial health and long-term success. I'll analyze this trade-off by examining the product ecosystem, key metrics, and potential experiments to inform our decision-making process.

Step 1

Clarifying Questions (3 minutes)

• Context: I'm thinking about Betterment's current market position. Could you share our current market share and how it compares to our main competitors?

Why it matters: Helps assess the urgency of growth vs. retention strategies Expected answer: Mid-tier market share with room for growth Impact on approach: Higher market share might favor retention, lower would prioritize AUM growth

• Business Context: Based on our revenue model, I assume a significant portion comes from fees on AUM. What percentage of our revenue is directly tied to AUM versus other sources?

Why it matters: Determines the immediate financial impact of focusing on AUM Expected answer: 70-80% of revenue from AUM-based fees Impact on approach: Higher percentage would lean towards AUM focus

• User Impact: Considering our user segments, are we seeing any particular trends in retention rates across different customer profiles (e.g., age groups, investment amounts)?

Why it matters: Identifies potential targeted retention strategies Expected answer: Lower retention among younger or smaller account holders Impact on approach: Would inform targeted retention efforts for specific segments

• Technical: Regarding our platform capabilities, do we have the infrastructure in place to support a significant increase in AUM without compromising performance?

Why it matters: Assesses our readiness for rapid AUM growth Expected answer: Current system can handle 2-3x growth Impact on approach: Limited capacity might favor gradual AUM growth with retention focus

• Resource: What's our current allocation of resources between customer acquisition and retention initiatives?

Why it matters: Identifies potential for reallocation Expected answer: 60% acquisition, 40% retention Impact on approach: Significant imbalance might suggest shifting focus