What is a good app retention rate?
The definition of a good app retention rate depends on the app’s industry, user base, business model, and definition of retention. For some apps, retention is about recurring subscriptions. For others, it’s about one-off visits or purchases. Product teams should benchmark their retention against similar companies in their industry. In e-commerce, for example, 33 percent retention is considered excellent.
How to define good app retention rate
Comparing retention rates can be difficult. Retention, typically expressed as a percentage, measures how many users took an action and then returned and took a subsequent action. Each company may have a different definition for ‘an action.’
The customer retention equation:
(# of customers at end of period – # of customers acquired during period) / # of customers at start of period) x 100 = retention rate
For example, if you have 150 customers at the end of the period, 124 at the beginning, and acquired 30 new ones, your equation would look like this:
((150-30) / 124) x 100 = 97% app retention rate
An e-commerce company might define an action as a repeat purchase. A social media app might define it as a repeat login and a news app might measure it as a renewed subscription. Their definitions are not comparable, and even two apps within the same industry that have similar customer bases might measure retention differently. The most empirical way to define a ‘good’ app retention rate is for product teams to measure it against their own past performance. As a general benchmark, however, Mixpanel conducted research into the behavior of 1.3 billion unique users who triggered 50 billion events. Mixpanel calculated the following numbers for the finance, SaaS, e-commerce, and media industries. Average app retention rate (50th percentile):
E-commerce displays the lowest retention rates relative to SaaS, media, and finance, but all experience a similar drop off from week one to week two. Elite app retention rate (90th percentile):
Companies with elite levels of retention have a similar drop off between week one and two, but it is much less pronounced. The broad averages in this study may be somewhat deceptive, however. Even within each company, retention rates will vary by platform. For example, Mixpanel found that the average mobile app retention rate was 41.5 percent whereas the web was 10.3 percent. There is a survivorship bias effect at play here; that is, it is easier to visit the web than to download an app, so it may be that those who bothered to download the app are easier to retain than those who visit the website. To accurately measure retention, teams need product analytics that can distinguish between various platforms and operating systems. Without them, product teams can’t get to the bottom of questions around retention rate or set reasonable retention goals for specific platforms and user cohorts.
Why is raising app retention rate critical?
Many companies prioritize new user acquisition over retention. Acquisition is a flashy metric that earns press and appears to drive the stock prices of publicly listed app companies such as Snap, Inc., Facebook, and Twitter. But without an equally concerted effort at retaining those new users, companies are essentially pouring energy, money, and resources into a leaky sieve. Investing in retaining customers can be vastly cheaper than acquiring new ones, according to the Harvard Business Review. Companies who retain more customers save on the advertising and marketing acquisition costs that typically drag down the lifetime value (LTV) of each customer. A study by Bain & Company showed that a mere five percent increase in retention rates helped companies increase profits between 25 to 95 percent. App users that are retained for the long term are more profitable, more stable, and more likely to evangelize the product, making user retention a wise investment.
What factors lead to higher app retention rate?
There are many of factors that affect app retention, but for most companies, it comes down to whether users find value in the product. Does it make their lives easier? Does it provide a utility they cannot live without? Is the app so engaging they can’t put it down? To improve retention, product teams must try to understand where users find value in their product and deliver more of those experiences. Consumer apps face typically suffer from high user loss, known as customer churn, because consumers have so many alternatives. Unlike with B2B apps, where users are typically locked-in for a subscription period, consumer app users can churn with little provocation. Successful companies combat churn by tracking metrics and analyzing customer research. They conduct user interviews, studies, and tests to make the user journey smoother, and they use app analytics to measure a wide variety of metrics such as LTV, daily active users (DAU), average revenue per user (ARPU), and more that ensure that they are delivering value. With app analytics, product teams can:
The greatest way app analytics help retain users is by automating pieces of the customer journey. Users don’t always find what they need within an app and while product teams can’t be there to guide each user, app analytics can. Analytics can automatically send encouraging messages to keep users engaged, segment them into cohorts, offer tutorials, and maximize their retention.