How to measure user retention and why it’s so important for you to understand it?
Updated: Mar 21
What is user retention?
Retention is a metric that measures how many users return to your product over a period of time and considered to be one of the most important KPIs when trying to analyze the product health or potential, it is a key indicator for growth and impacts almost every key business metric (e.g. DAU, Stickiness, LTV and more). The logic behind the importance of this KPI is quite simple: if your product does a good job with retaining users you will need to spend less on acquisition (or at least, less on re-acquiring churned users) and will have more frequent users and potentially higher conversion rates.
In today’s world its really hard to stand out, with rapid growth of apps and services across different industries with different offerings, you are not only competing against your peers in the industry you are competing for the users attention, you are competing for it when they browse the app store, you are competing for it when they look at their mobile screen figuring out what app to open, you are competing for it on social networks and on what they do on their free time, the bottom line is that today’s reality offers too many options and too many apps and no one is going to wait for yours to deliver value.
Top 3 ways to measure user retention rate
Calculating retention rates can sometimes be very challenging, there are different ways to measure this KPI and each one can tell a different story about your users. Undersetting the difference between each approach and which one is the most suitable for your business can have a huge impact on your product and roadmap.
Day N’ Retention
Day N’ retention is the most common form of retention measurement, it measures how many users come back to your product on a particular day (day N) after “Day 0”.
Note: In most cases “Day 0” is defined as the first time your users opened/visited your product or the day they registered, however it can also be more customized, for example the day a user performs a specific action (or any action) within your product (made a search, finished onboarding, viewed a product, made a purchase, etc.). Once you define your “Day 0” specification you can start tracking your users behavior and check how many of your users returned on Day 1, Day 2, Day 3, etc.
With this type of retention measurement we still need to define our “Day 0”, however instead of checking the return rate on specific day (i.e N) we calculate the percentage of users who return on or after a specific day (i.e. N + ∞), you can also predefine your “Rolling range” and test the return rate for N+X where X can be defined according to your product/business characteristics.
If in the first two approaches we defined a single day as our “Day 0” with Range retention we will use periods instead of days (e.g. week, month, quarter) and will check the return rate of users in the following period irrespective to the exact time of return (e.g. from all the user who first opened your app on week 0, how many returned on week 1).
So which retention should you use?
In order to answer this question you must have a clear understatement of your product and industry you operate in.
Things to consider when choosing an approach:
How frequently do you expect your users to use your app or product?What are the standards that are common in your industry?How does retention rates for your industry are being realized in online publications?
Answering these questions first will not only help you to better understand your product but also to prioritise your retention KPIs. In a lot of cases you may find that the approach that is suitable for your product is not necessarily the one that is most common in your industry and your KPIs can not be easily benchmarked against your peers (or the industry trends). Having the right retention KPI can show you where you can improve and give you a clear view of the health of your product, therefore my suggestion is to always take the approach that is most suitable for your product as the main KPI and others as secondary.
Starting off easy While I still stand behind my statement above, there are times (especially in early stages) that you will need to have first assessment of your metrics, for those times I always recommend starting with Day N’ Retention as way to calculate your product retention rates; This is also considered to be the classical approach which can easily be find in analytics tools and in online publications.
As mentioned users retention is one of the KPIs that have a key role in the success of your product, it is one of the most important health metrics and should be considered when you are working on your product strategy and OKRs setting. In future publications I will discuss ways to increase retention rates and the connection between retention, engagement and monetization.