Retention Rate

Alex Danchenko

Co-founder, Reteno

March 11, 2024

To properly track your app's performance and growth, you need accurate details you can measure over time. Your retention rate will help you achieve this and so much more, giving you relevant data to improve your services. Keep reading to learn about the retention rate meaning and how to track it correctly. 

What is Retention Rate? 

Retention rate refers to the number of active users your product still has, a significant period after onboarding. After the first interaction with your product, customers may stop using it for reasons best known to them.

However, if there are a good number of users who will stick to your product long after their first use, this indicates a high customer retention rate. In terms of mobile applications, the app retention rate refers to the number of users using the application after installation.

Why Is Retention Rate Crucial for Business?

As a business owner, the retention rate is important in your business for several reasons, including the following:

Increased ROI

Running a business requires a great deal of effort. So much planning, funding, and strategizing goes into making it run smoothly. After all these efforts, one would expect a reasonable return on investment (ROI). An increased retention rate can lead to a proportionate increase in ROI. In fact, studies have shown that a simple 5% increase in customer retention rate can lead to a whopping 25% increase in company revenue.

Proper Customer Service Analysis

One proven way to keep your business running is to analyze customer feedback and incorporate changes where necessary. The long-term customers are the users who can adequately identify problems and propose improvements in your service offering. That is, a high retention rate is not only an indication of a quality product but also a 'tool' for making it better.

Monitoring of Marketing Campaign Effectiveness

User acquisition is no small feat, as it requires proper strategies and intentionality to be successful. After a successful onboarding, a high customer retention rate shows that your marketing strategies were effective. On the other hand, customer churn indicates a weak marketing campaign and the need to restrategize. Generally, measuring your retention rate can give you the numbers you need for a proper marketing analysis and increase your average order value

Formula & Calculation Examples

You cannot just manufacture numbers out of thin air to determine your customer retention rate. You need a retention rate formula to guide you in calculating the correct retention rate every time. But before you calculate your retention rate, you will need the following data:

  • The number of customers or users you had at the start of that period. (CS)
  • The number of new customers who signed up, installed, or used your product during that period. (CN)
  • The number of customers or users you have at the end of that period. (CE)

Thus, the retention rate formula is:

Retention Rate

Let’s say, at the beginning of the year, you’ve had 200 customers (CS). During that year, you’ve acquired 71 new ones (CN), and by the end of it, the total number of users is 175 (CE). The calculation of your customer retention rate during this year will look like this:

Calculation

This yearly retention rate is a tad above average and is a good start for new businesses, irrespective of their industry.

What Is a Good Retention Rate for an App?

You must understand that each app is unique and targeted towards a specific audience. Even with the apps that offer the same services, each customer will have a different user experience due to several other factors.

Also, make peace with the fact that customer churn is inevitable. On average, apps lose about 80% of their Daily Active Users (DAUs) within the first three days of installation. You can, however, strive to slow it down and enjoy repeat purchases from your loyal customers.

On the first day of installation, the app retention rate should be at an all-time high. Some apps even reach up to 29% or more on the first day of installation. By the end of the first week, the retention rate would have dropped to at least 11%. At the end of 30 days, the retention rate often hovers around 7% - 9%. Useful everyday apps for shopping, gaming, news, and social interaction often enjoy a high retention rate. Other apps for travel, productivity, medicals, and the like usually have a lower retention rate. 

As for the yearly metrics for niches like ecommerce and retail, a retention rate of around 40%-50% is considered optimal. This is because repeat purchases and loyal customers are crucial for sustained growth and profitability in the ecommerce sector.

How to Improve Retention Rate

Whether you are a SaaS provider or you simply have a user-friendly app, you need a high retention rate. If you are confused about what to do, you can try the following tips to improve the retention rate in your business:

Enhance and Personalize Your User Experience

First impressions matter a lot and can determine whether a customer will stick with you. A user who has difficulty navigating your site and understanding its setup will definitely seek out a better alternative. Beyond offering them a unique and captivating user experience, you can also incorporate new things like gamification. This has proven to be an exciting way to keep users glued and also improve the aesthetic appeal of your app.

Use Mobile Push Notifications

When you are out of sight for too long, your customers are more likely to lose interest in your app. Even when they have not used your app for a while, they need a constant reminder that your services are available for them. You can use mobile push notifications to consistently show up and grab customer attention. These push notifications are also great for announcing new products and offers. Customers are more likely to open your app when they see a popup notification.

Adopt In-app Message Strategies

In-app messages are those delivered to your users while being active on your app. You can have a dedicated message center in your app for this or occasional pop-ups. At the end of the day, this goes a long way in keeping your users engaged.

Create Great Onboarding Experiences For New Users

You can also improve your app engagement by creating a seamless onboarding experience for new users. No one wants to go through so much stress just to install and set up your app on their devices. Allow email sign-ups to provide a secure means of recovering their account. Referral codes, free trials, and bonuses are also effective ways of onboarding and retaining new users.

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