As product usage analytics deliver a growing stream of data and insights into product team dashboards, user retention metrics have become an increasingly reliable KPI to measure customer, product, and company health. While this has long been the case for SaaS it is becoming increasingly important for B2B on-premise software, too.
Customer retention is “vital to the growth of your business since the cost of acquiring a new customer is much greater than maintaining and growing an existing account.” Research shows that “increasing retention by 5% actually increases profits anywhere from 25% to 95%,” so let’s define user retention, how to measure it, and what to do to improve it.
What is User Retention?
User Retention is the continued use of a product or feature by your customers. While measuring user retention for feature usage is relatively straightforward (using that feature at least once in a specified period of time), measuring it for a product requires more definition. It is important to lay out the usage factors that will be considered to be “product usage” before beginning your measurement efforts. For example, does simply running the application count as usage or is there a higher threshold based on time, number of key features used, etc.
Retention versus Churn
User Churn is a subset of user retention metrics that looks at the number of users who have stopped using a product over a specific time period. Defining that time period is important. Is your application used daily? A shorter time frame makes sense (especially where daily retention rates are critical). Is your application used monthly? A longer time frame is more appropriate. Understanding the context of how your application is used and setting a relevant time period for analysis will yield more fruitful insights.
How to Measure User Retention?
Once you decide on the relevant time period, you can measure user retention by taking the number of active users at the beginning of the time period and subtracting it from the number of those users who are still using your application at the end of the time period. To calculate the retention rate for that time period, simply divide the beginning number by the end number.
Churn Analysis Definition in Usage Intelligence
At the most basic level, churn analysis is measuring how many users leave your application in a given time period. Usage Intelligence provides a few options that allow you to look at churned, or lost, users from a few different angles.