What Is User Retention? How to Measure & Improve It (2024)
- Published:
- Updated: November 15, 2024
User retention rates for digital products are notoriously low. One month after downloading a mobile app, the average retention rate is just over 40%. By month three, it’s down to 30%
User retention is a critical metric for product teams. While sales or downloads can cause temporary spikes in user activity or market fit, user retention represents how effective your user onboarding flow is and how fast users experience value.
Building a product that delivers real value to new users is the recipe for retaining customers, creating loyal customers, expanding accounts, driving renewals, and earning referrals. Customer retention and account expansion are often a downstream effect of world-class experiences, from support resolution, onboarding, product education, and customer care.
In this article, we’ll define customer and user retention, explain how to measure it, analyze areas of friction causing dropoffs, and provide examples of how to create better experiences and stickier products that grow your retention rates.
What are the best strategies for improving user retention?
- Create a simple, guided onboarding experience
- Use cohort analysis to understand your app’s value
- Design a simple, intuitive UI
- Use engagement hooks in your app
- Prompt users to return to your app
- Gather feedback from churned and active users
- Use product analytics to identify areas of user friction
- Resolve technical and glaring UX issues
- Enable users with on-demand support
- Send regular progress reports to your users
- Target your activated users with upsell and account expansion opportunities
- Build product-focused communities
What Is User Retention?
User retention is the number of users interacting with your product over a given period. User retention is often used for B2C products and services, mobile apps, and freemium apps.
You calculate user retention over a defined period that you determine. For example, you can audit your user retention rate based on a recurring monthly or quarterly schedule or choose a specific period to examine.
You can calculate user retention for your app or focus on specific features. If you’re measuring user retention for your overall product, you can look at the number of logins over time. For specifics, focus on the number of users interacting with a particular feature over your timeframe.
User retention vs. customer retention
User retention measures individual users who log into or use a product (this is a usage metric for product teams). In contrast, customer retention measures overall accounts paying for a product (this is a financial or customer success metric).
Customer retention refers to companies’ ability to retain new customers and turn them into repeat buyers. It is often used instead of user retention for B2B products with larger, multi-year contracts.
Customer retention can indicate whether your marketing product matches your customer expectations. It can also highlight low-quality experiences and pain points customers may face in the customer lifecycle, from poor support to bad onboarding.
User retention vs. churn
Your churn rate shows the number of users you’ve lost over a given period of time — essentially, it’s the opposite of your user retention rate. This could include customers who have canceled their subscriptions (or decided not to renew) or users who have deleted your app.
A high churn rate indicates your users don’t see the value in your product. High churn is also a red flag for vulnerability — it means that your product isn’t meeting users’ needs, which shows there is an opportunity for a competitor to creep into your customer base.
Importance of User Retention
User retention is a critical aspect of any business, regardless of size or industry. It refers to the ability of a company to keep its existing users engaged and satisfied with its products or services over an extended period of time.
Acquisition is more expensive than retaining current customers due to marketing and advertising costs. Companies can reduce these costs by retaining existing customers while still generating revenue. Retained users are more likely to make repeat purchases, increasing each customer’s lifetime value. Satisfied users are also more likely to recommend your product or service to others, leading to new customers and increased revenue.
Consistently providing a positive user experience can create strong brand loyalty, leading to long-term relationships with your customers. Loyal customers are more likely to forgive minor mistakes, like a delay in delivery or a minor product issue, and continue to support your business. They may also become advocates for your brand by promoting it to others through word-of-mouth recommendations.
Retained users also provide valuable feedback on your company’s product or service. This feedback can help identify areas for improvement and refine offerings to better meet customers’ needs. Companies that listen to their users and incorporate their feedback are more likely to build products or services that better align with their customers’ needs.
Customer retention also boosts customer loyalty, which reaps the following benefits:
- Loyal customers often recommend products to their families and friends. The more customers you retain, the more customers you get.
- Loyal customers are more likely to provide helpful product feedback since they’re more invested in it.
- Loyal customers are likely to spend more with a company, which makes them more profitable for your business.
Areas in Customer Journey That Drive Retention
More than 70% of app users churn within the first three months. Users go through three phases during that time: onboarding, activation, and habitual use.
These three phases are significant barriers to user retention because they ask something from your users — they must take action to progress to the next phase. Maintain a high percentage of retained users by ensuring each phase offers a streamlined, pleasant product experience.
1. User onboarding
User onboarding is a hyper-critical stage where first-time users sign up and start to use your product. The goal of user onboarding is to acclimate new users to your product and its features, guide them to their “aha!” moment, and help them experience value with your product (known as time-to-value).
Creating a smooth and straightforward new user onboarding experience can lead users to the next phase more quickly, while a complicated or confusing process will results in high user dropoff and churn. User onboarding is your opportunity to guide users toward your most important features and showcase your product’s potential, motivating them to use it regularly.
That’s why you need to offer new users a great SaaS customer onboarding experience and ensure they can easily find any product information they need.
In your new user onboarding experience, you need to:
- Guide users to their “aha!” moment.
- Reduce time-to-value.
- Provide in-app assistance to overcome technical-related setup and new user issues.
PRO TIP:
With a digital adoption platform (DAP) like Whatfix DAP, product managers can utilize a no-code editor to create in-app experiences that guide new users with product-led onboarding. With Whatfix, create segmented experiences for different user types and guide them to experience their “aha!” moment with product tours, interactive walkthroughs, user checklists, welcome surveys, and more.
2. Activation
User activation is the main goal of user onboarding and is accomplished when your users realize your product’s full value. This often occurs when users experience their “aha!” moment — the exact moment when everything clicks and they see how your product can benefit their day-to-day tasks. The amount of time it takes a user to reach this moment is the time-to-value (TTV). Activated users feel positively toward your product and are likelier to stay retained.
Activation can be viewed as a more expanded version of user onboarding. When you activate users, they begin to explore your product’s more advanced features and become more experienced.
To develop new users into advanced users, you can:
- Promote users to explore underutilized and advanced features and provide in-app tutorials to help them realize how its value.
- Send usage emails to your users to nudge them to utilize their subscriptions.
- Use pop-ups and emails to announce new features.
- Use pop-ups and emails to promote case studies, webinars, and other customer success materials showcasing how similar companies or users find value in its advanced features.
- Monitor user actions that show intent for expansion opportunities.
- Pushing users to invite or refer others on their team to the product.
PRO TIP:
With Whatfix DAP, drive advanced feature adoption by prompting users with in-app Flows and Smart Tips triggered based on user actions. Understand how users are engaging with your in-app experiences with Guidance Analytics to take a data-driven approach to user activation and retention.
3. Habit forming
In the third phase, users form a habit involving your product, making regular usage a part of their routine. Users in this phase feel they need your product, and getting more people into the habit-forming stage will mean better user retention rates.
Power customers have developed into mature users of your product. They utilize its full breathe of features and solve multiple challenges. They are brand evangelists who publically speak on behalf of your product’s value.
To develop advanced users into power customers, you can:
- Collect their feedback to influence your product roadmap.
- Set up weekly 1-1 meetings to provide hands-on training and product tutorials.
- Invite customers to speak at your sponsored events or dinners.
- Invite customers to join private communities and roundtables to connect and learn with other power customers.
What Is a Good User Retention Rate?
User retention rates for apps vary significantly depending on the industry, but the average is around 5.6% user retention after 30 days.
A “good” retention rate for your product will depend on the maturity of your company and your application. While your goal is to keep your user retention rate as high as possible, companies trying to scale need higher user retention rates than those testing the waters with a new offering.
For a good starting point, track your rate against industry benchmarks to see how you compare to the average.
Here are the average 30-day user retention rates for different industries:
- 5% for business apps
- 6% for communication apps
- 10.2% for digital banking apps
- 5.6% for eCommerce apps
- 2.5% for education apps
- 4% for health and fitness apps
- 4.1% for productivity apps
- 3.9% for social apps
How To Calculate User Retention
You set the variables for how you calculate your user retention rate. You can tweak the time frame by measuring across a regular time period (think monthly or quarterly) or measuring during specific moments in time (like right after your product’s onboarding period).
You also get the freedom to define what “retention” means. That term could translate directly to downloads or subscriptions, or you could choose to track how many users interact with a specific feature of your product.
You have even more flexibility in the way you calculate your user retention rate. There are four methods for measuring user retention:
1. Full retention
Full retention looks at the users who returned to your app daily over a certain time period. This is a very specific method for measuring user retention — and it makes the most sense for daily-use products.
The equation for full retention rate is:
Number of users who used your product every day during your time period ÷ Number of users who first used your product on Day 0 of your time period
2. Classic retention
Classic retention measures users who return on a certain day of a given time period. For example, if you’re measuring over a 30-day period, this method only tracks users who returned to your product on day 30.
It doesn’t measure how many users came back on any other day in between their starting date and the measure date, but it is a semi-reliable way to measure whether people are re-engaging regularly with your product.
You measure classic retention rate by:
Number of users who used your product on a specific day ÷ Number of users who first used your product on Day 0 of your time period
3. Rolling retention
Rolling retention tracks users who return on a certain day or on any day after that within your time period. This offers a more flexible approach than classic or full retention. This method is easy to use, but it will view your active daily users the same as someone who only returns to your app once during your time period.
The equation for rolling retention rate is:
Number of users who used your product on or after a specific day ÷ Number of users who first used your product on Day 0 of your time period
4. Return retention
The most flexible method for measuring is return retention. This approach looks at users who return at least once within the time period. That return date can happen anytime during your chosen timeframe and still count toward your user retention rate.
Return retention rate is calculated by:
Number of users who returned to your product at least once during your time period ÷ Number of users who first used your product on Day 0 of your time period
12 Best Practices for Improving Customer Retention
Achieving an above-average user retention rate is all about creating a product that adds value while reducing friction for your users. Your goal should be to showcase your product’s value to your users as soon as possible.
Here are twelve best practices, strategies, and tips to help retain and upsell your customers.
1. Provide contextual, simple, in-app guided onboarding for new customers and users
User onboarding aims to make your users feel knowledgeable about your product without making them go through a complicated process. An information-rich, iterative process creates a great first impression, which goes a long way toward retaining engaged users.
For a successful onboarding experience, try:
- Including in-app demos and tutorials.
- Using informative tooltips to explain product features.
- Creating interactive walkthroughs.
- Offering personalization options upfront.
- Providing in-app resource centers that deflect support issues.
- Analyze your user onboarding completion rates and take a data-driven approach to iterations.
In-app onboarding enables new customers and users with step-by-step tutorials, product tours, interactive walkthroughs, tooltips, pop-ups, and more – all embedded within your app so users can learn how to use it in a practical, hands-on way.
In-app onboarding allows you to “show” customers how your app works while they use it rather than tell them what to do via a lengthy demo or a knowledge base outside the app. Through real-time guidance, in-app onboarding makes it easier for customers to get value from your app and remain customers.
Digital adoption platforms (DAP) like Whatfix enable customer onboarding, customer success, and product teams to showcase product value and active new users with:
- In-app experiences like task lists, tooltips, product tours, and walkthroughs that explain how to set up your account, how to perform complex actions in your app based on a customer’s use case, and showcase its core features – all built using a no-code, simple-to-use editor.
- Analyze and test your product experiences and user flows with advanced user behavior and product analytics.
- Collect customer and user feedback with native and embedded surveys, allowing you to understand customer sentiment, if your users find your onboarding helpful, and what new help content you need to create.
- Drive adoption of new features with beacons, tooltips, and feature walkthroughs.
2. Use cohort analysis to understand your app’s value
Cohort analysis is a data-driven way to compare the behavior of users belonging to different “cohorts” or user segmentations, such as acquisition date or demographic data. Looking at cohorts shows you which features and user characteristics correlate with retention so you can double down on them. As with user retention rate calculations, you have some flexibility in how you define your cohorts, though you should segment your users based on criteria critical to your product.
This type of user analysis lets you draw conclusions between your users’ behavior and your product’s retention rates, which should inform your product development going forward.
For instance, if users who spend more time in your app are better retained, you should focus your development efforts on keeping users engaged longer. If you find that users who interact with a specific feature tend to stick around, be sure your marketing and onboarding efforts showcase that specific aspect of your product.
PRO TIP:
With Whatfix Product Analytics, implement a no-code event tracking tool that allows you to set up and track any custom user event or action. Set up user onboarding funnels to identify areas of friction causing dropoffs, map optimal journeys that activate your user cohorts, and use Whatfix AI to uncover insights into user behavior that you’ve overlooked.
3. Design a simple, intuitive UI
Users are looking for a UI that offers clear, accessible benefits. If you’re noticing problems with your retention rate, audit your UI to ensure it’s designed to work well for your specific customers.
Potential UI elements to audit include:
- Make sure buttons and supported gestures are tuned to your audience (apps aimed at children or the elderly may need to allow for less dexterity)
- Emphasizing your product’s important features without overloading users with extra clutter
- Organizing your app so users can get where they’re trying to go with the fewest steps possible
- Checking to see that your app is responsive and fast — users won’t stick around for slow-loading products
Product teams should create user flows and build user journey maps to understand how end-users are reaching your different, pre-determined goals.
If you’ve noticed a drop-off in your user retention and are unsure which UI feature is causing it, try A/B variant testing. A/B testing calls for creating multiple versions of different features and serving them to specific segments of your audience. This allows you to gather feedback on different UI components — meaning you can pinpoint which features resonate with your users and which ones are driving down your retention rates.
4. Use engagement hooks in your app
Engagement hooks are built-in triggers that encourage your users to take action. After taking that action, your users should feel rewarded in some way, which further invests them in your product. The ultimate goal is for your users to want to engage in that specific action without you prompting them first. That’s the heart of habitual use, and it’s great for user retention.
Gamification is an example of engagement hooks at work. Turning app usage into a fun and rewarding experience encourages users to build a habit around it. Other hooks can include:
- Offering product discounts to long-time users
- Rewarding active users with points that they can use to unlock features of your product
- Giving badges or status symbols to engaged users (if your app has a social component or forum)
5. Prompt users to return to your app
Giving users a gentle nudge inviting them back into your app eventually gets them to the habitual stage. You can utilize push notifications or emails for this purpose (but be sure you’re not overwhelming users with too many messages).
The best return prompts are relevant to the user, personalized to their needs, and actionable. You should give them a specific call-to-action (CTA) if they do tap a notification or click a link in an email, such as exploring a newly launched feature, completing a step in the set-up process, or checking out a product update. Most of all, your messages need to show their value immediately. If you send push notifications your users aren’t interested in, they’re likely to change their notification settings or disable them altogether.
It’s important to target the right users with return prompt notifications. Aim for people who seem less engaged with your product than they were during a different time period. You can also reach out to users who have churned to announce a new product feature or redesign that they might enjoy.
6. Gather feedback from churned and active users
User feedback is extremely valuable for user retention. If you want to know the specific reasons why someone stuck with your product (or why they didn’t), asking them directly is your quickest path to actionable information.
For active users, you can build feedback opportunities into the product experience at specific times. You might want to push a notification encouraging app ratings and reviews for new users who have engaged with your product for less than a month. If they’ve been retained for several months, you can push another round of notifications asking them to update their reviews.
Churned users are also valuable sources of feedback. They can call out your problem areas and give you a pathway to correct user retention problems. You can also build in natural opportunities to gather feedback from customers who are on their way out. Email unsubscribes can include a comment form where your customers can explain precisely why they’re opting out.
PRO TIP:
With Whatfix DAP, utilize templates to quickly create and launch in-app surveys to collect end-user feedback at critical moments in your experience.
7. Use product analytics to identify areas of user friction and signs of churn
Examining product analytics means you can make strategic updates to improve your user retention rates. Product data, such as time spent in the app and feature usage rates, show which aspects of your product impact your users’ behavior most.
Track your users’ typical behavior to understand how people engage with your product. Try to spot usage trends that point to areas for improvement — for example, if users don’t spend much time engaging with one of your core features, you may need to put that offering in a more prominent place or change the way it functions altogether.
Looking for anomalies is another excellent way to pinpoint areas where you can improve. If you’ve recently updated or made changes to your app and you see a spike in churn, that could indicate that the changes are unpopular or something isn’t working as intended.
Remember to weigh your improvements against your user retention rate goals. Making small or seemingly mundane changes could have a bigger impact on your users’ opinion of your product than a full-scale redesign.
To identify red flags for churn, first identify product usage patterns for your most successful customers, such as:
- How many sessions do they complete in your app in the first week or month? Is this trending up or down the second month?
- What key actions are they completing within your app within their first week or month? Are they completing your in-app guided onboarding experiences? What features are not being used?
- How often do they log in to your app in a given period?
Once you’ve identified usage patterns for regular users, use them as benchmarks to compare user activity for all customers. Product analytics tools such as Whatfix Analytics and Mixpanel provide no-code event tracking solutions that enable you to track any user action, and analyze it via journeys, cohorts, usage maps, etc.
8. Resolve technical and glaring UX issues
Some things will drop your user retention rates immediately, such as:
- Technical problems such as app crashes, broken links, or bugs
- Slow loading times
- Intrusive pop-ups, ads, or feedback requests
App users (and customers in general) have very little patience for features that don’t work as expected. This is another area where churned user feedback becomes invaluable, as it can alert you to problems early on. If you notice a drastic change in your user retention that seems unexplained, conduct an audit to ensure your app is functioning correctly.
PRO TIP:
With Whatfix DAP and Product Analytics, take a data-driven approach to product improvements without needing technical dependencies. Analyze user behavior to identify areas of friction causing dropoff. With these insights, take a data-driven approach to new in-app guidance and improvements to your user onboarding – creating frictionless experiences that seamlessly guide users throughout your product.
9. Enable users with on-demand support
Providing customer service and support helps build a strong relationship between customers and your business, which can significantly impact user retention. When customers feel valued and supported, they are more likely to continue using your product or service.
Users now expect products to provide multi-channel and prefer self-service end-user support solutions for overcoming support issues. This means product and support teams must collaborate to offer various support solutions to help your users where and when they experience issues, including:
- FAQs and knowledge bases.
- In-app help centers.
- Product update logs detailing new features.
- Social media support.
- Live chat
- For larger, enterprise products, dedicated IT support and help desk.
PRO TIP:
With Whatfix DAP, enable your users with Self Help to overcome any technical issue at the moment of need. Self Help integrates with your knowledge base, FAQs, customer training resources, help desk, video tutorials, product update log, and more. Users can search Self Help for any contextual issue they’re encountering. Self Help pulls from your knowledge repositories to provide guidance and users can prompt in-app guided tutorials from Self Help.
10. Send regular progress reports to your end-users
Your app, product, or service may not always be top of mind for your customers, but their goals and pain points are. Sending updates reminds users of the important problems they want to solve and connects your product to something inherently valuable to your customers.
Email is an excellent channel for sharing progress reports with users. Progress reports usually list the most recent activities a user has performed within an app and any significant achievements they’ve made, like money saved or calories avoided. If different groups of people use your app, the report may also include updates on what other team members are up to within the app.
For instance, Grammarly sends a Weekly Writing Update email to users with insights about their writing: the volume of new words they used, how many words users wrote per week, and the top mistakes they made.
11. Target activated users with upsell and account expansion opportunities
Define what a power user means for your product: customers who use the most features, customers who make the most number of referrals, customers who are most active in support forums, or customers who are all of the above.
Once you’ve decided who qualifies as a power user, let these users try product add-ons for free for a limited period. You can also give them a discount on your subscription when they hit a milestone, like their first anniversary or making the most product referrals.
Use product analytics tools to set up key user actions that showcase intent to renew or upgrade subscriptions. This will allow you to flag specific customers that your account expansion teams can target based on recent activity and user intent signals.
12. Build product-focused communities
A product-focused community allows power users to share their experiences with other users, learn about features and benefits they may have missed, and help other users troubleshoot problems. In the process, communities help power users become more invested in your product and brand and make them more likely to stay with your brand.
Explore these ideas to build virtual and in-person communities around your product:
- Host virtual and in-person events and conferences
- Start a community newsletter
- Allow power users to host online and offline events
- Start an ambassador or referral program for your product
- Distribute product goodies and encourage users to share them on social media
Customer & User Retention Metrics & KPIs
Customer and user retention metrics are essential for your business’ health. Analyzing your product usage and user health indicators provides insights into how much revenue your business retains each month, whether it can survive its current churn rate, how well your organization converts contract renewals, and what areas of the customer journey you need to dedicate more resource on improving.
Here are sixteen important customer and user retention metrics to track, benchmark, and analyze for improvement:
- Retention rate: Customer retention rate is the percentage of customers who continue paying for your product for a given period.
- Customer churn rate: The percentage of customers who cancel their product subscription during a given period is called customer churn rate. High churn rates indicate your product isn’t sticky or valuable enough for customers.
- Renewal rate: Customer renewal rate is a highly relevant customer success metric for SaaS businesses that follow a subscription-based model. It measures the percentage of customers who renew their subscription at the end of the subscription period.
- User adoption rate: Product adoption metrics like product and user adoption rates indicate the percentage of customers who start using a product after its acquisition.
- Net MRR churn rate: Net monthly recurring revenue (MRR) churn rate is the revenue percentage lost monthly from cancellations and downgrades after considering account expansion.
- Gross MRR churn rate: Gross MRR churn rate is the percentage of revenue lost due to total cancellations or downgrades in a month. Gross MRR churn rate is usually greater than net MRR churn rate, as it doesn’t factor in expansion from existing customers.
- Expansion MRR rate: Expansion includes upsells, cross-sells, add-ons, and reactivation. Expansion MRR rate is the percentage of additional revenue you gain from existing customers for a given month.
- Net dollar retention rate: Net dollar retention rate, also called net revenue retention rate, is the opposite of net MRR churn rate. Net revenue retention rate is the percentage of recurring revenue retained from customers for a given period after factoring in upgrades, cancellations, downgrades, and pause requests.
- Gross revenue retention rate: Gross revenue retention rate measures the percentage of revenue retained over a given period without factoring in upgrades. Gross revenue retention is also called gross dollar retention or gross MRR retention.
- Customer lifetime value (CLTV): Represents the money you expect customers to spend throughout their relationship with your business. User lifetime value is the same but for individual users. This often dictates how much companies are willing to spend on acquiring new customers or users through referral campaigns.
- Daily, weekly, and monthly active users: Daily active users (DAU), weekly active users (WAU), and monthly active users (MAU) are user engagement metrics that tell you how many customers use your product regularly. By keeping a pulse on DAU, MAU, and WAU, you can proactively monitor product usage, nudge inactive users to use your product more often and prevent churn.
- Repeat purchase rate: Repeat purchase rate (RPR) measures the percentage of users who have made more than one purchase over a specific period.
- Net promotor score: Net promoter score is the percentage of customers or users likely to recommend your product (or promoters) minus the percentage of customers unlikely to recommend your product (detractors).
- Customer satisfaction score: Customer satisfaction score (CSAT) is the percentage of customers happy with your product or customer service experience. CSAT surveys ask customers to rate a business on a scale of 1 to 5 based on the following question: “How satisfied were you with our product/service?”
- Customer effort score: Customer effort score (CES) evaluates how easily customers can complete an intended action, such as buying a product, resolving a service issue, or acquiring information.
- Customer health score: Customer health score is a composite metric that analyzes product usage, customer satisfaction, and engagement levels to predict customer loyalty, identify potential churn, and gauge the overall health and potential long-term value of a customer relationship.
With Whatfix, product managers and customer onboarding teams are empowered with a no-code editor to analyze user behavior, create in-app guided experiences, and continuously engage users with contextual help.
Create in-app guided tutorials tailored to different user personas and use cases. Analyze metrics like retention by cohort, user dropoff, adoption, onboarding completion rate, and more with Whatfix Analytics to take an agile, continuous improvement approach to scale your user onboarding.
With Whatfix, you can:
- Build contextual user onboarding experiences with Tours, Task Lists, and Flows
- Provide continuous in-app training to drive advanced feature adoption with Flows, Smart Tips, and Beacons
- Drive new feature adoption with Pop-Ups and Flows
- Provide in-app support with Self Help
- Analyze user behavior and product usage data to improve your user onboarding flows
- Collect user onboarding feedback with in-app Surveys
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