Retention

What is Retention

Retention is a metric that shows how long users remain active after their first use of a product or service. This metric is important for assessing user loyalty and satisfaction, as well as overall product effectiveness. Retention can be measured over various time periods, such as a day, week, or month after the user’s initial interaction with the product.

Retention rate is usually calculated as the percentage of users who continue to use the product after a certain period from their first use. For example, the monthly retention rate shows what percentage of users continue using the product one month after their first session.

This metric is especially important for mobile apps, online games, SaaS products, and other services where user engagement and return usage are key to business success. Improving retention rate can increase profitability and reduce customer acquisition costs, since retaining existing users is generally less expensive than acquiring new ones.

What is Retention Used For

Retention assessment is used for many reasons, key among them:

1. Understanding user loyalty. Retention shows how well a product keeps users after their initial use. A high retention rate indicates that users find the product useful, satisfying, and worth returning to.
2. Evaluating product effectiveness. Analyzing retention rates can help identify strengths and weaknesses of a product, pointing to areas that need improvement to increase user satisfaction and engagement.
3. Revenue forecasting. For many business models, especially subscriptions and repeat-purchase services, retention is directly linked to revenue. Increasing retention can significantly extend the revenue lifecycle per user.
4. Optimizing marketing strategies. Understanding which marketing campaigns or channels attract users with high retention helps businesses allocate their marketing budget more effectively.
5. Cost reduction. Acquiring new users is usually more expensive than retaining existing ones. Understanding and optimizing retention rates can help reduce overall acquisition and retention costs.
6. Improving user experience. Retention data analysis can reveal user experience issues and help identify product changes that boost satisfaction and engagement.
7. Increasing competitiveness. In today’s competitive environment, user retention is a key success factor. Understanding and optimizing retention helps companies stand out by offering a product that better meets user needs and expectations.

How Retention Rate is Calculated

The retention rate metric is calculated to determine the proportion of users or customers who remained with a product or service after their initial interaction over a specified time period. This metric is a key indicator of user loyalty and satisfaction. Here is the standard formula for calculating retention rate:

Retention Rate = ((Number of active users at the end of the period − Number of new users during the period) / Number of users at the start of the period) × 100%

Where:

• Number of active users at the end of the period: The total number of users still active at the end of the measured time period.
• Number of new users during the period: The number of new users acquired during the period. This is subtracted from the total active users at the end to exclude new users and focus on those retained.
• Number of users at the start of the period: The total number of users present at the beginning of the measured period.

Example:

Suppose you want to calculate the monthly retention rate. At the start of the month, you had 1000 users. During the month, you acquired 200 new users. At the end of the month, you had 800 active users. The calculation would be:

1. Subtract new users from active users at the end to find how many original users remained: 800 − 200 = 600.
2. Divide this number by the number of users at the start: 600 / 1000 = 0.6.
3. Multiply by 100% to get the retention percentage: 0.6 × 100% = 60%.

Thus, your monthly retention rate is 60%, meaning 60% of the original users from the beginning of the month remained active at the end of the month.

General Methodology for Measuring Retention

The general methodology for measuring retention includes these key steps and principles:

1. Define what user action counts as retention (e.g., repeated app use, repeat purchase).
2. Decide the time frame for measuring retention (day, week, month, etc.).
3. Group users into cohorts based on the time of their first interaction with the product or other characteristics.
4. Calculate the percentage of users in each cohort who performed the target action by the end of the chosen period, and analyze retention trends across cohorts.
5. Compare retention rates between cohorts to identify trends and assess the effectiveness of product or marketing changes.
6. Use the insights to identify product improvements aimed at increasing user satisfaction and loyalty.

What Retention Rate is Considered Normal

The “normal” retention rate varies significantly depending on industry, product or service type, and business model specifics. However, generally, higher retention rates indicate better user retention and thus greater loyalty. Below are typical benchmarks for some product types:

Mobile Apps:

• High-performing games: Day 1 retention around 40%, Day 7 around 20%, Day 30 around 10%.
• E-commerce apps: Day 1 around 30-40%, Day 7 about 20%, Day 30 around 10%.
• Social networks and communication apps: Retention can be higher due to daily use, Day 1 up to 50%, Day 7 around 30%, Day 30 20% or higher.

SaaS:

• B2B SaaS: Monthly retention can vary, but 90% or higher is considered good.
• B2C SaaS: Good retention is also around 90%, though numbers may be lower depending on the service type.

E-commerce:

• Monthly retention: Around 30-40% is considered good, though this varies by segment and product assortment.

Regardless, it is important not only to aim for “normal” rates but to continually improve retention, as it directly impacts long-term product success and revenue stability.

How to Improve Retention Metrics

Improving retention requires a comprehensive approach and attention to every aspect of the user’s interaction with the product. Here are strategies to help improve user retention:

1. Regularly update the product, fix bugs, and add new features based on user feedback.
2. Simplify onboarding, making it intuitive and informative so new users quickly realize the product’s value.
3. Use user data to create a personalized experience by offering recommendations, content, and offers aligned with their interests and behavior.
4. Ensure accessible and effective customer support so users feel their issues are resolved promptly and effectively.
5. Develop loyalty programs that reward users for repeat purchases, long-term usage, or completing specific actions in the app.
6. Provide fresh and relevant content regularly to maintain user interest and engagement.
7. Create a communication strategy to keep users informed about news, updates, and special offers, encouraging them to return.
8. Use analytics to monitor user behavior and identify retention trends. Analyze which factors influence retention and optimize accordingly.
9. Build communities through forums, social media, and events to foster loyal users who promote your product and boost retention via social connections.
10. Conduct A/B testing on features, offers, and communication strategies to find what most effectively increases retention.

Improving retention is an ongoing process. It’s important to regularly gather user feedback, analyze data, and adapt strategies according to changing user needs and behaviors.