A common metric used by mobile app marketers is user retention, or the percentage of users who continue to use your app during a given time frame. The opposite of retention is user churn, or the percentage of users who leave your app during a time frame. When looking at a time frame, your user base is made up of either active (retained) or inactive (churned) users.
Retention % + Churn % = 100%
So how do you know which users are retained? Most apps define an active user as one who opens the app or who executes a key action (like logging in to their account). At User Hook we consider a user active if they open the app. A retained user is one that does this key action during a given timeframe. Thomas Sommer has a good discussion on the most popular ways to compute user retention for your app.
For this discussion, we are going to focus on how Churn Rate affects the growth ceiling for your user base. Our time frame will be 1 month and we will assume that we attract 100 new users each month.
In an ideal world, we would never lose users. Each month we would add 100 new users and our user base would continue to grow. But that’s not the real world. Users will leave your app for a variety of reasons. We can calculate our user base size using the following formula:
(1 – Churn Rate % / 100) x Starting User Base + New Users = Ending User Base
For our example situation, at Month 1 we have 100 users. Starting with Month 2 we need to include user churn. Let’s assume a churn rate of 25%.
(1 – 25/100) x 100 + 100 = 175
For Month 2, our numbers would look like:
(1 – 25/100) x 175 + 100 = 231
A recent Localytics report claims that across all app types, 58% of users will churn in the first month and 75% of users will churn within three months.
Looking at the graph, you will notice that the lines for the 25% Churn and 75% Churn create a curve that eventually reaches a plateau. That plateau is the Maximum User Base for the corresponding churn rate. This happens because as your user base grows, you will reach a point where the number of users you lose to churn equals the number of news users you add. Higher churn rates reach this plateau faster than lower churn rates.
To calculate your Maximum User Base, you can use the following formula:
(100 / Churn Rate %) x Number New Users = Maximum User Base
For 25% Churn Rate with 100 new users, the Maximum User Base is 400.
(100 / 25) x 100 = 400
For 75% Churn Rate, the Maximum User Base is 133.
(100 / 75) x 100 = 133
Maximum User Base relates to Churn Rate in a non-linear fashion. Changing churn rate by 1% does not mean that your maximum user base will also change by 1%.
Let’s look at decreasing our churn rate from 70% to 65%. As the graph shows, if we decrease the churn rate by 5%, we actually increase our maximum user base by 7.6%. Since the graph is non-linear, decreasing your churn rate by 5% will not always equal a growth of 7.6% in maximum user base. If you change from 95% churn to 90%, you will only see a 5.7% increase while changing from a churn of 30% to 25% will result in a 20% growth. The key point here is that decreasing your churn rate by any amount will result in a maximum user base growth that is greater than that churn rate decrease.
There are two factors to Maximum User Base: 1) Churn Rate and 2) Number of New Users. To increase your maximum user base, you will either need to reduce your churn rate or increase the number of new users you attract.
Listen - Apps are not one-way streets. As an app owner, the product you made is your vision, but it might not fit with your user’s vision of the product. So how do you find what your user’s vision is? Ask them. User Hook provides in-app feedback and surveys to gather input from your users.
Communicate - Generic messaging at the wrong time is a great way to lose your user’s trust. Your users want to know that you understand their concerns at their specific point in their app lifetime. User Hook offers the ability to target specific users and display in-app messages. This means you will get the right message to the right user at the right time.
Encourage - No app is used 24 hours a day. So there will be times when your app is not in use. Nudging your users back into your app is a great way to increase retention and reduce churn. But just like in-app messages, nudging too often or with the wrong message will just make your users angry. User Hook allows you to send targeted push messages to your users so you don’t annoy your users. User Hook also introduces the idea of Push Points. These are targeted push messages that are scheduled to be sent at specific points in the user’s app lifetime. An example is a Push Point that will send a nudge push message 24 hours after a user has installed the app.