When you have just launched your mobile app, most of your marketing budget probably goes to app user acquisition. However, focusing on the number of app downloads can blind you to the importance of app user retention.
Increasing your mobile app retention rate is a mobile marketing growth strategy that you must not neglect because, while acquiring new app users is critical to your success, so is app retention.
What Is App Retention and How Do You Measure It?
App retention refers to a mobile application’s ability to retain its users over time, i.e., make users stay on and continue using the app. Retention rate can be measured in different ways.
A straightforward way to calculate the app retention rate is by comparing the number of the app’s active users to the number of the app’s fresh installs in a given period.
For instance, if an app has 100 active users and 1,000 installs on a specific day, you can say its one-day app retention rate is 10%. If an app has 2,000 active users and 30,000 installs in one month, its app retention rate for the month is 6.67%.
A better way to measure the app retention rate is by dividing the number of daily active users (DAU) by monthly active users (MAU). For instance, if you had 1,000 active users yesterday and 20,000 unique users for the month, you can say your app retention rate is 5%.
Yet another way of evaluating an app’s ability to retain users is the churn rate, which is an app’s rate of attrition in a given period.
To measure the churn rate for thirty days, subtract the number of users on day 30 from the number of active users on day one. Next, divide the difference by the number of day one’s active users.
To illustrate, suppose your app had 10,000 users on day one and 4,000 users on day 30. The difference is 6,000, and the churn rate is 6,000 divided by 10,000 or 60%.
Of course, fresh installs can skew this number. It could be that 8,000 users left, but you acquired 2,000 new users, giving you 4,000 on day 30 and thus the churn rate of 60%.
To be precise, you can focus on cohort measurements. Instead of computing the difference between the number of users on day one and day 30, you can count only the number of users remaining from the original day one cohort on day 30.
To illustrate, suppose you have 10,000 installs on 1 March. On 30 March, count how many remains of the original 10,000. If, of the 10,000 users, only 2,000 remain active, then your actual attrition rate is 80% and your real retention rate is only 20%.
Whichever method you use to evaluate your app’s stickiness, remember this: You want high retention rates and low attrition rates.
Why You Want High Mobile App Retention
A high rate of retention and a low rate of churn mean people are staying to use your app, and only a few people are leaving — i.e., you have high app stickiness and retention.
This is something you should aspire to achieve for your app. According to Bain & Company’s Frederic Reichheld (as cited by the Harvard Business Review), a 5% increase in customer retention rates can translate to a 25-95% increase in profits.
The following are some ways app stickiness and retention can fuel your business growth.
1. Spend Less on Acquisition
According to the Business of Apps, the average cost per mobile app installation ranges from $0.34 to $5.28. In the Europe, Middle East, and Africa or EMEA region, the average mobile app cost per install is $1.03 (AED 3.78). Suffice it to say it can be expensive to market an app and get people to download and use it.
However, Invesp, a well-known ecommerce conversion rate optimization software and services provider, says customer acquisition typically costs five times as much as customer retention. Put another way, it can cost you 400% less to retain app users than it is to acquire them.
Focusing on app retention, therefore, can help you trim down your marketing costs. You can then use your marketing savings on product improvement or business development.
2. Gain and Maximize Value of Acquisition Spend
Improving app retention also means maximizing every dollar you spend on acquisition marketing. Working on increasing app downloads and installs without working to increase app retention is akin to pouring water into a leaky bucket — i.e., pointless and wasteful.
What use is getting people on your app if you can’t retain them long enough to monetize their use? That’s letting money go down the drain.
3. Increase Customer Lifetime Value
Suppose you’re a digital wallet app, and you make money from transaction fees merchants incur when their customers use your app to pay them. Your goal, therefore, is to make more people download and use your app to pay for their online purchases, bills, and groceries.
However, you don’t want one-time users. Instead, you want users to become loyal to your app and become habitual users. You also want these regular users to remain on your app for a long time, preferably for years. The longer a person stays as an active and chronic app user, the more you earn from their activity and the more valuable they are to you.
The money you make over the period a person remains a user of your app is their customer lifetime value. Increasing your app users’ average customer lifetime value can drive profits while increasing app stickiness.
Using the digital wallet app example above, if user John earns you $50 in transaction fees every month, his yearly value is $600. If he stays as an app user for five years, that’s a customer lifetime value of $3,000. However, if he uses your app for only three months, he’ll make you only $150.
4. Boost Expansion Revenue
A high retention rate means increased customer satisfaction, i.e., happy app users.
Compared to new users, loyal and satisfied app users should be relatively easier to convince to upgrade to a more expensive plan or procure a paid add-on. Thus, high mobile app retention means a greater likelihood of increasing your average revenue per user (ARPU).
5. Boost Acquisition Through Referrals
Happy app users are more likely to recommend your app to their friends and network. Therefore, by focusing on app user retention, you can increase referred app registrations and thus indirectly boost the effectiveness of your acquisition marketing campaigns.
Focus on Mobile App Retention
Getting a million downloads can be terribly exciting. However, you should never let the glamor of massive app acquisition blind you to the value of mobile app retention to business growth.
The stickier your app, the lower your marketing costs, the more you can maximize acquisition marketing spend, the higher your average customer lifetime value, the greater your average revenue per user, and the more users you can acquire through referrals.
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You, too, can learn about specific, actionable, and growth-focused strategies to acquire and retain app users by registering for a course.
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