The Harsh Reality of Declining User Retention

Retention has been called the “king” of all mobile app marketing metrics.

For one, retention gives you the ability to estimate a customer’s lifetime value — a crucial metric for optimizing your marketing and achieving ROI-positive campaigns.

Second, retention rate indicates user “delight” in your app. Unlike increased revenue, which may just indicate that you’ve convinced users to spend more money for a limited time, increased retention rates mean your app is actually fulfilling its fundamental use case, which is the basis for loyal, revenue-generating users.

Retention rate is defined as the percentage of users who return to your app on the Nth day after the first use. If 100 users install and open your app one day and the next day 40 of those users return to your app, your Day 1 retention is 40 percent. When looking at retention figures, the industry usually looks specifically for Day 1, Day 7 and Day 30 as the benchmarks for calculating a user’s lifetime value.

Despite the importance of retention, average retention rates in the mobile app industry are abysmally low. Research shows that the average mobile app loses 77 percent of its daily active users within the first 3 days after the install. And within 30 days, 90 percent of users are no longer active on a daily basis.

Measuring Retention Rate

Improving retention rate starts with measurement, and if you want to measure retention data, you need to understand how often users are returning in a given period of time.

This is best done through cohort analysis, which groups together users who have started using your app at approximately the same time and shows you in percentages how many are returning.

Through cohort analysis, you can look for specific patterns in user behavior data and identify your most loyal users as well as those that were the first to drop off. By looking at specific groups, cohort analysis can help you figure out if your retention strategies are delivering results or not.

Find Your ‘Ah-Ha Moment’ & Optimize Accordingly

Marketers often increase retention rate by first uncovering the most common in-app behaviors of their most loyal users and optimizing their marketing for these downstream events.

These behaviors, or “Aha moments”, might include a user registration, a profile completion, a social share or the user making purchases above a given amount in the days after their first use.

From a marketing perspective, apps can then optimize their marketing channels for such down-funnel events. With the right analytics, they can analyze these events on a channel, campaign, publisher, creative, and geographic level.

One Singular customer in the ecommerce vertical looks at the three pieces of data when optimizing their marketing for specific user events:

  1. Total number of events
  2. Event/installs
  3. Cost per event

With Singular, the app was able to improve customer retention rate by tracking and optimizing the channels, campaigns, publishers, creatives and geographies that drove the highest performance in terms of the above KPIs.

Retention Woes Persist Even at the Top

The trend of low retention rates in the mobile industry persists even among the highest-ranked apps in the App Store. While studies show a correlation between an app’s rank and the percentage of users who stick around, even top tier apps see inevitable retention declines over time. For example, the top Android apps retain around 70 percent of users 3 days after install, compared to the industry average of 77 percent, but the falloff from D1 to D30 is about the same as all the other apps.

Thus, most marketers and analysts agree that the key to success is to get users hooked during the critical first 3–7 day period, whereas the longer-term data is harder to affect. While users tend to try out a lot of apps, they decide which ones they want to stop using within the first 3–7 days. For “good” apps, the majority of users retained for 7 days stick around much longer.

Striking A Balance Between Retention & Monetization

Because the harsh reality of declining retention rates in modern-day marketing, the greatest potential for monetization exists in the earliest portion of a cohort’s tenure, when the most users are active.

Yet a balance must be struck between encouraging monetization and encouraging retention. Apps that aggressively attempt to monetize users run the risk of alienating users who may become highly engaged and, as a result, contribute the most money money over their lifetimes.

This is why app owners must focus on building apps that are first and foremost focused on retention rates above trying to extract money from users, as attempts to increase revenue are more difficult to achieve — and more prone to downside risk — than increases in retention rates.