How to measure the success of your app
Introducing TAD — a unifying metric for mobile value creation
Two kinds of apps
Mobile apps have become a central part of our lives and the tech business. WhatsApp, Instagram and Snapchat have experienced extraordinary valuations. Yet in spite of mobile’s ubiquitous usage, value creation for mobile apps remains poorly understood.
Broadly speaking, there are 2 types of mobile apps on the market:
a) Apps that are a sales channel for a real-world product (Amazon, Booking.com, Uber), in other words: “transactional apps”
b) Apps where the app itself is the product (Facebook, WhatsApp, Twitter), in other words “product apps”
For transactional apps, key metrics such as Conversion Rate and Basket Value are both widely established and well understood as they follow the same e-commerce logic known from selling on websites.
Product apps, however, often use a rather wild set of metrics (Installs, User Base, Virality, Stickiness, Retention) measured in any variety of ways to describe their app’s commercial traction.
This article focuses on Product apps only and introduces TAD — a unifying metric that will help mobile entrepreneurs focus on what really matters: long lasting user relationships.
One unifying metric
Total Active Days per User (TAD)
What is it?
It simply shows how many active days a new install spends in an app over his lifetime before churning.
Using the analogy of a relationship, it shows you how intensive and lasting the relationship between the user and the app is from the first meeting (install) to breaking up (churn).
To be very precise, the metric Total Active Minutes per User (TAM)
(TAM = TAD*Active Minutes per Day) would be an even stronger metric since it takes into account usage intensity. However, since 60% of apps are only opened once and never again, let’s start by getting users to be active at all before working on increasing into usage intensity.
Why is TAD so important?
a) It directly shows your product quality.
You can use all the vanity metrics you want, only if users are actively using your app for a significant number of days, there is product-market fit.
b) It directly links to your monetization and revenue potential.
No matter if you monetize through advertising or in-app purchases (IAP), you only get a shot at it when a user is actively using your app.
c) It directly links to the valuation of your company.
Don’t understand how WhatsApp or Snapchat can be valued in the billions of dollars without any substantial revenue? They are one of at most 10 apps in the world with hundreds of total active days per user (TAD).
Calculating TAD
The beauty of TAD is that you can estimate it in seconds by knowing your D1, D7, D30 retention rates (retention defined in the only correct way as retention ON that day, i.e. D7 Retention = #Users active ON Day 7 after Install / #Installs 7 days ago).
To find the Total Active Days per User (TAD) simply sum up all your Dx retention rates:
Simple example: An app has a D0 retention of 100% (i.e. everyone uses the app on the day of install), D1 retention of 50%, a D2 retention of 25% and everyone churns afterwards (i.e. D3 and following retention of 0%).
TAD = 1 + 0.5 + 0.25 = 1.75 days
Spreadsheet to calculate your TAD
For a rough estimate, here is a google spreadsheet where you can enter your retention rates and get an estimate your app’s TAD (1st tab) https://goo.gl/kyLBOL
The power of TAD
Let’s take a look at the hypothetical case of billion-dollar social network (aka Instagram), a good game (aka Words with Friends) and a normal app.
This is what retention looks like from D0 to D30 in a standard retention graph using the retention rates from above:
Whilst the billion-dollar social network already shows significantly more active days and less churn, the difference is still within a magnitude.
Calculating TAD for the first 30 days after install:
Billion-Dollar Social Network: 16.1 TAD
Casual Game: 6.3 TAD
Normal App: 3.1 TAD
Yet extending the chart to D720, we quickly see how long-lasting relationships with users change everything.
TAD for 2 years after install:
Billion-Dollar Social Network: 116 TAD
Casual Game: 10 TAD
Normal App: 3.4 TAD
Whilst the normal app and the casual game where not able to increase TAD significantly after 30 days, the billion-dollar social network 10x their TAD thanks to a longstanding relationship with the user. It is still seeing activity after 2 years+ from a loyal cohort of users whereas the casual game and the normal app have “died” long ago.
Why is TAD better than the current metrics out there?
TAD vs. Monthly Active Users (MAU): MAU has two shortfalls. First, it shows your app’s monthly active users at one specific month in time (vs. the lifetime view TAD is taking) and could thus be easily boosted by doing tons of paid marketing in that month. Second, it shows the number of users that use the app at least once per month. And that’s exactly the problem: once per month is just not enough. You can’t monetize on once-per-month usage and you can’t be viral with once-per-month usage
TAD vs. Daily Active Users (DAU): DAU removes the once-per-month problem of MAU but keeps the point-in-time vs. lifetime view problem. Again it could be inflated by doing a lot of marketing but does not really tell you if the app provides a great user experience
TAD vs. Retention rates: Retention rates are essentially the right thing to look at, but the devil is the details. Rolling retention rates (i.e. active users any time AFTER a certain day) tell you nothing about usage intensity of the app and could be easily boosted by say one push notification or reactivation campaign. Retention rates ON day x after install, however, are a great way to look at apps — only it’s very tough to keep up with your D1, D3, D7, D30, D90 retention rates all at the same time. And that’s exactly where TAD comes in.
TAD as key to monetization
Monetization for product apps works in 2 main ways:
a) Advertising
Example:
10 TAD * 2 Sessions/Day * 2 Ad Impressions/Session * 5$ eCPM/1000
= 0,20 $ Advertising Revenue per User
- TAD: Key metric that makes all the difference
- Sessions / Day: How intensively is an active user using the app?
- Ads / Session: How aggressively do you want to show ads to your users?
- eCPM in $: How valuable are your users for advertisers?
How do you achieve significant advertising revenues?
In my opinion, the only exponential lever (and thus core metric) is TAD.
That is because there is a natural, narrow limit to Sessions/Day (who uses the same app more than 20x a day?), Ads/Session (before it gets spammy) and eCPM (since advertisers will not spend infinite amounts per impression). The only place with no natural cap is your ability to get users to use your app actively for many days, weeks and years.
b) In-App Purchases (IAP)
Example:
10 TAD * 1% of Daily Active Users paying * 5$ average purchase price
= 0,50 $ IAP Revenue per User
- TAD: Key metric that makes all the difference
- % of daily active users paying: What % of your active user base “seeks” a purchase? (equivalent to conversion rate)
- Average purchase price: What is the accepted value of your in-app purchase?
Again TAD is the core metric to optimize for since only active users can make purchases.
Monetization take-away:
In the above example, the app with a TAD of 10 would achieve an RPI (Revenue per Install) of 0.70$. However, in mobile marketing CPIs (Cost per Install) have risen to 1–3$. Hence, it will be very difficult to build a user base profitably.
If you are the billion-dollar social network with a TAD of 116, you are suddenly earning 8.12$ RPI per User, allowing you to scale marketing and making a profit of 5$+ on every new User (assuming 1–3$ CPI).
Focus on TAD as key value driver
- To build successful product apps and create substantial value on mobile, focus all your efforts on building a product that has a high number of TAD. Everything else comes second.
You can get featured plenty of times or be the most viral app in the world and generate millions of installs, without high TAD, there is no value since you cannot retain your users.
You can have great advertising integrations and nice in-app purchases, without high TAD, there is no value since you cannot monetize inactive users. - Start by providing a user experience that will lead to users being active on D30 and you have won half the battle. Then focus on creating a user experience that can last for years. Have a large share of users active on D720 and you might just be the next WhatsApp.
What are your thoughts on TAD? Looking forward to hearing your comments!
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