Transparent Growth Measurement (NPS)

Maximizing User Retention: How to Calculate Daily Active Users

Contributors: Amol Ghemud
Published: January 5, 2023

Summary

The article provides insights into the significance of daily active users (DAU) for SaaS and subscription-based companies. It discusses the impact of DAU on business growth, strategies for measuring user retention, and ways to enhance product and service offerings to retain customers. The piece emphasizes the importance of understanding customer engagement and offers guidance on calculating and increasing DAU to foster business success and customer loyalty.

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Introduction

One of the critical metrics in a SaaS business or a subscription-based company is tracking the number of active users on a daily basis. A company would simply be flying blind without paying attention to this metric. Growth in the scale of Daily Active Users (DAU) indicates that new customers are joining the business, and previous ones are actively using the products and services. However, if this number declines, companies need to look after their planned strategy and upgrade or make changes wherever required. 

Measuring user retention appropriately and using the data to improve the product and services provided is a vital part of every business strategy. Maximizing user retention not only helps businesses gain profitability but also helps them in acquiring loyal customers for a more extended period.

What is the meaning of Customer Retention?

Customer retention is a simple metric used by multiple businesses to measure their customer loyalty and gauge their overall business success over time. Various businesses and companies come up with well-planned strategies and tactics to better customer experiences, retain them for a more extended period and reduce customer loss.

The retention rate is the percentage of clients or users who use a product, service, or platform for a while. It is a metric that assists companies and organizations in determining how well they can keep their current clientele and gauge client loyalty. The retention rate, sometimes represented as a percentage, offers essential information on the efficiency of a company’s offerings in terms of goods, services, customer satisfaction, and total value.

A high retention rate typically means clients are happy with the firm’s services and continue valuing their relationship with it. A poor retention rate, however, may indicate that customers need help finding the product or service to be alluring enough to keep using it.

The retention rate is a crucial indicator for several reasons.

Customer Satisfaction: High retention rates frequently show customers are happy with the goods or services.

Long-Term Value: Retained clients are more likely to provide more revenue over time than new customers, who could have higher acquisition expenses.

Reduced Churn: A high retention rate indicates that fewer customers are “churning,” which can be expensive in terms of lost income and efforts used to acquire new customers.

Feedback and Improvement: Understanding why customers leave or stay can offer insightful ideas for enhancing goods, services, or customer assistance.

How to Calculate Retention Rate?

The retention rate is calculated by comparing the number of customers or users at the end of a certain period to the number of customers or users at the start. Here’s the formula:

Customer Retention Rate = (Total number of customers at the end of the time frame – New customers acquired) / Customers at the beginning of the period

To break down the calculation step by step:

  1. Determine the Period: Decide on the period for which you want to calculate the retention rate. This could be a month, quarter, year, or any other relevant time frame.
  2. Count Customers/Users: At the start of the chosen period, count the total number of customers or users you have.
  3. Count New Customers/Users Acquired: Count the number of new customers or users you acquired during the chosen period. These individuals were absent from your user base at the start of the period.
  4. Count Customers/Users at the End: At the end of the chosen period, count your total number of customers or users.
  5. Apply the Formula: Plug the values into the formula to calculate the retention rate:
  6. Multiply by 100: Multiply the result of the calculation by 100 to express the retention rate as a percentage
  7. Interpret the Results: The resulting percentage is your retention rate. A higher percentage indicates better customer/user retention, while a lower percentage suggests a higher attrition rate.

The Customer Retention Rate calculation remains incomplete without knowing customer churn. Customer churn is essential for businesses as it helps them understand the percentage of customers who no longer use the products or services during a specific time frame. Customer churn rate can be figured by dividing the customers lost during a time frame by the number of customers a business had at the beginning of that time frame.

What are Daily Active Users (DAU)?

The simplest way of explaining daily active users is the amount of time customers spend utilizing the services or products provided by a particular sector. For example, an e-commerce app could define user interaction as adding items/ products to the cart. In contrast, an online banking app may define DAU as the transfer made by a particular customer. User interaction increases the business’s profitability, success, and overall growth.

How can one calculate Daily Active Users (DAU)?

Calculating Daily Active Users (DAU) is quite simple, but it can vary depending on how the activity is defined for a particular business. DAU is defined as the total number of users per day. Every business has its own credentials that qualify as an active user. 

Once the user is defined, total daily active users (DAU) can be given as:

Total Daily Active Users (DAU) = (Unique New Customers) + (Unique Returning Users)

The factors, unique new customers and unique returning users determine and measure how fast a platform attracts new users. A company can create a benchmark based on the previous DAU performance and results. An increase in DAU is a sign that a product or a service has made ‘stickiness’ among the users, whereas a decrease in DAU means that the business will run into a churn.

How to increase Daily Activity Users (DAU)?

In-app texts

In-app texts provide maximum relevance. They are the best segments that help users gain real-time updates to personalized content. In-app texts are not intended for communicating but are very helpful in providing information related to version updates, app issues, or even payment failures.

Using Push Notifications

Push notifications are one of the quickest and most effective ways to engage users with the app. For a rise in DAU, it is essential to determine which push notification might work the best and which wouldn’t.

Using Messages and Emails

Occasional messages and emails are another way to serve the users and keep them engaged with the platform. They work as a reminder for the users to remain active and consistently use the services daily.

Deep linking is the heart

Deep linking is one of the most efficient ways to build a firm and long-lasting relationship with users. A hassle-free user experience will enable users to have a friendly user journey and make them stick to the platform for longer.

Wrapping up Daily Activity Users (DAU)

The prime of businesses and companies is to keep the user engaged with the platform for as long as possible, and not just for a particular day but on an everyday basis. Calculating DAU can be straightforward, but it can turn more complicated depending on how the user activity is defined. Including some factors like re-engagement campaigns, emails, and push notifications offer users a tailor-made value, increasing user engagement, followed by user retention.

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FAQs

1. What is a good percentage of daily active users?

A healthy daily active user rate is expected to be over 20 per cent. The higher this threshold, the better it is for businesses. This value can make companies understand their marketing tactics’ overall health and effectiveness.

2. How are monthly active users calculated?

Monthly active users (MAU) refers to the number of people who have engaged in a particular platform in some way in the past 30 days. 

Monthly active users can be given as:

MAU = Number of active users in a month 

3. Why is user retention important?

In addition to directly affecting a company’s or platform’s success, growth, and sustainability, user retention is crucial for a number of reasons. User retention is essential, as evidenced by the following factors:

Revenue Generation: Repeat customers are likelier to buy products or services, renew subscriptions, or use premium services. Over time, they help to create a reliable and consistent revenue stream. Since the price of acquiring new consumers can be higher, it is frequently more economical to keep your current clientele than to search for new ones.

Higher Customer Lifetime Value (CLTV): Long-term customers have a higher overall lifetime worth to your firm, which is measured by customer lifetime value (CLTV). Along with making frequent purchases, they also recommend products, offer comments, and may even end up supporting a particular brand.

Reduced Churn: The attrition rate of your client base, often known as churn, is the percentage of people that discontinue using your product or service. The expansion of a firm may need to be improved by high turnover. To keep your client base constant and even growing over time, effective retention methods help reduce churn.

Better Customer Feedback: Consistent customers frequently offer insightful feedback. They can assist you with locating prospects for new products or services, areas that need improvement, and trends that could impact your company.

Customer Insight and Data: Maintaining clients gives you more chances to collect information about their tastes, routines, and requirements. Your product development, marketing plans, and improvements to the consumer experience can all benefit from this data.

In conclusion, user retention is crucial to creating a successful, long-lasting business. Revenue, consumer satisfaction, and brand expansion are all positively impacted. 

4. How do I increase user retention?

Providing value, improving the user experience, and sustaining ongoing engagement are all necessary components of a strategy mix for increasing user retention. Some practical strategies to increase user retention are listed below:

Offer Outstanding Value: Ensure that your product or service truly solves the problems of the target audience by providing outstanding value. Surpass user expectations by monitoring and enhancing the quality of your offerings on a constant basis.

Personalize User Experience: Make advantage of data to learn about user preferences and behavior, then adjust your services as necessary. Based on user history and interests, provide individualized recommendations, content, and experiences.

Simplify Onboarding: Create a friction-free, intuitive initial user experience to ease the onboarding process.

To assist customers in properly using your product, offer tutorials and clear instructions.

Multi-Channel Engagement: To keep up a constant flow of contact, reach users through a variety of channels, including email, and mobile apps.

To meet the needs of each medium, modify your messaging.

Provide Flexibility: Offer adaptable plans or choices that take into account the various needs and financial constraints of users. Users should be able to alter their experience to suit their tastes.

Place a high priority on customer service: Provide quick, useful responses to consumer questions and concerns. User retention and happiness can be greatly influenced by positive support encounters.

5. What are the five key factors of customer retention?

Several elements that work together to sustain a solid and devoted client base impact customer retention. Keeping consumers is primarily influenced by the following important factors:

Customer satisfaction and value proposition: An essential element of delivering value and keeping your promises to customers is ensuring that your product or service lives up to expectations. Providing superior goods, first-rate services, and pleasurable encounters consistently meets or exceeds client expectations.

Effective Communication: Establish open channels of communication with your customers in order to communicate effectively.

Continually inform them about new features, promotions, pertinent news, and product improvements. Transparently and swiftly respond to any questions or complaints.

Making Emotional Connections: Make emotional connections with your consumers by showcasing your comprehension of their problems, objectives, and values.

Create satisfying encounters that inspire emotions like contentment, trust, and empathy.

Consistent and Pleasurable User Experience: Whether it’s your website, app, customer service, or in-store encounters, ensure every user encounter is smooth and delightful.

Reduce friction, eliminate problems, and make utilizing your product or service as simple and natural as possible.

Although these elements are crucial for client retention, it’s important to remember that this comprehensive endeavor calls for attention to numerous facets of your company. You can develop a devoted client base that stays engaged with your business over time by continually providing value, fostering relationships, and prioritizing consumer demands.

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About the Author

amol ghemud
Optimizer in Chief

Amol has helped catalyse business growth with his strategic & data-driven methodologies. With a decade of experience in the field of marketing, he has donned multiple hats, from channel optimization, data analytics and creative brand positioning to growth engineering and sales.

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