CleverTap
CleverTap
Feb 21, 2018 · 9 min read
Originally published on the CleverTap blog

A 10% increase in user retention can increase the value of a business by more than 30%.

Forget awareness. Forget traffic. Forget leads.

How would you like to grow your business without adding another dime to your budget?

Simply keep 10% more of your existing users — the people who already like you — coming back to your mobile app. Your value will essentially increase by a third.

We’re going to turn the topic of user retention inside out to teach you everything you need to know to get users flocking back to your app.

Part 1. What is User Retention?

Before diving into the why and how of app retention, we need to understand what it is.

So what is the definition of user retention?

In the simplest sense, user retention is about keeping people coming back to your app.

Marketing, advertising, and direct sales can bring users to your app. But a good product plus an effective user retention strategy? That’s what keeps users engaged, active, and profitable over the long term.

The most common method of measuring retention is N Day Retention. This measures how many users come back to an app on a given day.

With mobile apps, the percentage of new users coming back on Day 0 and Day 1 (the first 48 hours after download) are the most important for getting users hooked on the app — and also where the steepest drop off occurs.

Part 2. Why Retention is Essential to Growth

Retention is notoriously low for mobile apps.

The average app loses 77% of its daily active users (DAUs) within the first 3 days after install.

Within 30 days, it’s lost 90% of its DAUs.

And by 90 days, that number jumps to over 95%.

Image: Andrew Chen

According to Ankit Jain, this trend is driven by user experimentation. People like to try out different apps, and delete the ones they don’t like.

“Users try out a lot of apps but decide which ones they want to stop using within the first 3–7 days. For ‘decent’ apps, the majority of users retained for 7 days stick around much longer. The key to success is to get users hooked during that critical first 3–7 day period.”

In other words, acquiring a new app user isn’t as permanent as it sounds.

It’s really more like a qualified lead — like getting a free trial user for a SaaS product.

They’ve expressed interest and are giving you a chance to prove yourself… nothing more.

This begs the question:

Why are businesses so focused on acquiring new users if they can’t keep the ones they already have?

Retention Over Acquisition

Acquisition is necessary for growth. Obviously, we need to add new users each month to grow anything.

But in most cases, acquisition is overemphasized over retention.

Rookie mobile teams often get preoccupied with tracking new users and total monthly users — without paying much attention to retention. And that can be a fatal mistake.

Here’s an example:

What would it look like if a mobile app was adding 10,000 new users a month?

That looks pretty solid, right?

If we’re only looking at acquisition stats like new users and total active users, this graph looks great.

We’re adding 10,000 new users per month, and our new user total is up 120% in a single year!

But there’s a problem with aggregate numbers like these….

They don’t show the whole picture.

To get a clearer idea of how retention factors into this equation, it’s necessary to break this graph down into cohorts (users grouped by the month they were acquired).

This is how the same graph would look if with users segmented into monthly cohorts while maintaining the average retention rate mentioned above.

Each color represents a different user cohort.

By looking at the bottom red cohort, we can see that 10,000 new users joined in February. But only 500 are still using the app after 3 months.

Suddenly, the problem is crystal clear.

But isn’t some churn expected?

We’re still increasing our total active user base each month. Surely 67% yearly growth is a win?

In the short-term, that might appear to be true. The problem is, it’s not sustainable growth.

By extending this out another 2 years, we can see how average user retention would play out:

Take a look at an individual cohort. Notice how users drop off significantly and consistently over time.

Within two years, over 92% of users are lost.

We’re maintaining our acquisition numbers to continue overall growth, sure. But that growth rate will plateau as our churn rate catches up with us.

And those 10,000 new users every month are still just as expensive to acquire.

Without solid retention, instead of our ROI increasing with time, it actually decreases.

Now, compare with a great growth curve.

Notice how a significant part of each cohort stays over time, creating a stacking effect of steady growth.

Users drive revenue and profits. So how do these charts translate to dollars and cents?

Let’s extrapolate the poor growth curve into a revenue curve.

You might look at this chart and think, “Hey, that doesn’t look so bad.”

But don’t be deceived by short-term results. Fast forward a couple of years and see where we end up.

With each additional year, revenue growth drops. But expenses remain the same.

Now compare to revenue with a good retention rate:

With a solid retention rate, revenue compounds with time. This is the coveted “hockey stick” curve you’re used to seeing.

Think of your users like a fine wine: they get better with age. The longer you keep them, the more valuable they are to your business.

When retention is strong, so is revenue.

This is why some of today’s biggest businesses spent so much time perfecting user experience and retention strategies — at the expense of immediate profits.

It’s why Amazon reinvested every dollar into business development on its way to being the 5th most valuable company in the world.

And to put the icing on the cake, good retention significantly reduces acquisition costs.

According to Fiksu, as of January 2016, cost per install in the US App Store and Google Play was $1.64 for iOS and $1.91 for Android.

Image: Fiksu

If 77% of new users disappear after 3 days, that means 77% of acquisition investments are effectively wasted.

Say you’re spending the average $2 per user.

At 1,000 new users per month, you’re wasting $1,500 out of your $2,000 budget.

At 10,000 new users per month, you’re losing over $15,000 every month to poor retention. Not to mention lost revenue discussed above.

Any way you look at it, retention is the foundation of successful apps.

Part 3. Understanding the Three Phases of User Retention

Any discussion about user retention is incomplete without understanding cohort analysis.

Cohort analysis sounds like a big and complicated concept, but it’s not. “Cohort” is just a fancy word for a group of people who have something in common.

Acquisition cohorts track users who all joined on a certain day. Behavioral cohorts track users based on specific behaviors.

So what do cohorts have to do with user retention?

Cohort analysis measures user engagement over time, pinpointing exactly where you’re losing users.

Visualizing cohorts as a retention curve makes it really easy to see when users are leaving your app.

Retention curves will do one of two things:

  • Continue declining until it hits zero (bad retention)
  • Stabilize over time (good retention)

The key to improving user retention is stabilizing the curve as fast as possible — and at the highest possible percentage of acquired users.

So how do we actually do that?

Phase by phase.

The 3 Phases of User Retention

User retention can be broken down into three distinct phases: initial, mid-term, and long-term. Each of these phases needs to be analyzed and optimized differently.

Phase 1: Initial Retention

All retention phases are important… but they’re not all equal.

At the end of the day, the initial retention phase is the most critical.

How you engage users in this initial phase will have a far greater impact on overall retention than anything else.

If you fail in Phase 1, there’s very little you can do in the next phases to make up for it.

What makes the initial retention phase so important?

Simply put, this is where users get their first impression of your app and your brand.

Ideally, you want new users to engage with core features and see how useful the app is as soon as possible.

But a lot can go wrong.

They might download and launch the app, get annoyed by a long onboarding process, and never come back.

They might start poking around, but never use the features that make the app a favorite for core users.

They might even use the app a few times, but then decide it’s not good enough and uninstall.

The goal is to create an immediate, immersive encounter with the app’s unique value.

A great example is MyFitnessPal, an app that helps users track calories.

The app’s unique value lies in its simple user interface and vast database of common food items.

The onboarding process encourages users to log a food they’ve eaten. They immediately experience how easy it is to count calories using the app’s database.

This feature solves a key pain point for users and provides the “aha moment’ that hooks them on the app.

Phase 2: Mid-Term Retention

The second phase of user retention is all about repetition and forming new habits.

No matter how exciting a user’s first experience with an app is, the novelty will wear off.

Too many app teams believe a successful “aha moment” in phase 1 will automatically make phase 2 a success.

Unfortunately, a single good experience doesn’t create a new habit.

By helping users create new habits around the app, eventually they won’t need a reminder to use it. They’ll keep coming back all on their own.

To continue with the MyFitnessPal example:

The app encourages user habits by sending push notifications to remind users when they’ve forgotten to log a meal.

Phase 3: Long-Term Retention

The first two retention phases are mostly focused on onboarding and behavioral psychology.

The final phase, however, is ultimately about building a great product and continuously improving it.

You can’t sit back and relax. You have to keep refreshing users’ perception of your app as a “must have” in their evolving daily lives.

Pulling this off is part data and part art.

But the headline is this: understand your users — and never stop looking for ways to help them solve their problems and achieve their goals.

If you look at any app with a history of successful growth, you’ll find a long list of consistent software updates. MyFitnessPal is regularly updated twice a month.

Adding new features, improving the UI, and quickly fixing bugs is what keeps users around.

If users are all clamoring for a certain improvement, that should take priority over new features or other changes.

Don’t think quantity. Think quality.

Resources to Drive User Retention

Get tactics on improving user engagement for each phase of retention, as well as tips on building an effective user retention strategy for your app, by reading the full post on the CleverTap blog.

Mobile Marketing Insights by CleverTap

All you need to know about app analytics and user engagement is right here. Read the latest mobile marketing news and expert advice from the CleverTap team.

CleverTap

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CleverTap

CleverTap is a leading mobile marketing platform built for analytics and engagement. Follow us for the latest mobile marketing news and expert advice

Mobile Marketing Insights by CleverTap

All you need to know about app analytics and user engagement is right here. Read the latest mobile marketing news and expert advice from the CleverTap team.

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