Darshil Gandhi
Director, Product Marketing, Amplitude
User retention is how many active users log in or use your product over a specified period, typically measured monthly, quarterly, and yearly for subscription-based products. Retention is most often expressed as a percentage, known as a user retention rate.
While the customer retention can be broad and complex, user retention is more straightforward. A solid understanding of user retention principles and how to measure and sustain high retention levels can pay dividends for your company’s profitability.
Key takeaways
- User retention measures how many people use your product over a set period.
- Unlike customer retention, user retention is an activity metric, not a financial metric.
- The user retention rate formula is: (number of active users at the end of a set period - number of new users during the set period) / total number of active users at the beginning of the period.
- Key ways to improve user retention include: cohort analysis; soliciting and acting on customer feedback; improving your onboarding experience; and leveraging push notifications.
User retention rate vs. customer retention rate
On the surface, user retention may sound similar to customer retention. Still, there is a distinct difference: customer retention measures how many customers continue paying for a product, while user retention is how many people use the product.
Customer retention rate
Customer retention measures the number of customers who continue to pay for your product or service over a given period.
Customer retention is a financial metric that measures how many customers renew their subscription to your product or service, and a single customer might include multiple users. For example, a company selling HR solutions to large enterprises would measure customer retention by how many enterprises continue their subscription over a quarter or a year.
User retention rate
User retention measures how many individual people from a client company log in or interact with your product over a given period.
User retention is a usage metric, not a financial measurement. For the HR software example, they’d measure user retention by how many users from a client’s company log in to their product over a quarter or a year.
User retention rate vs. churn rate
User retention and churn rate are related but different. While user retention calculates the number of users a business retains, churn rate is the number of users a business loses or how many customers don’t re-subscribe to a SaaS product. All users have two options: churn or continue using your product. So your churn rate is the inverse of your retention rate, and together they should add up to 100%.
How to measure user retention
Measuring user retention can help you understand your company’s overall health, with high user retention signifying stability and profitability. But to improve user retention, you must first define your terms and time frame and determine the type of retention to track.
The user retention rate formula
The basic calculation for user retention rate is as follows:
The first part of the equation determines how many users you retain during a period. Then, dividing your retained users by your total number of users tells you the percentage of total users that are repeat customers.
While calculating user retention rate is relatively straightforward, the easiest way to ensure accuracy is using a platform like Amplitude to do the math for you.
Set your formula parameters
To use this calculation accurately, you need to decide how you’ll measure two key factors: how to define a user and your timeframe for tracking retention.
- Define user: Determine what constitutes “using” your product. Is it enough to have the application on their desktop? Do they have to use it every day for it to count? This definition will differ for every product, but you need to align your definition internally for an accurate retention measurement.
- Set a timeframe: You should pick a timeframe based on your product’s intended use. For example, if you sell an analytics tool that creates quarterly reports, measuring user retention on a weekly basis won’t give you an accurate understanding of customer engagement with your product. On the other hand, if you sell a single sign-on application that users should interact with multiple times daily, a weekly timeframe may be appropriate.
Look at alternative retention benchmarks
The basic user retention formula works for many use cases, but a more specific version of the primary formula may better suit your product or industry.
- N-Day or Return On retention: N-Day retention, referred to as Return On retention in Amplitude, measures the number of users that engage with your product on a specific day, starting from Day 0.
To measure Return On retention, analyze how users behave in the days following Day 0. Use the formula to understand how many return to your product on Day 1, Day 3, Day 5, and so on.
Bracket or Return On (Custom) retention
Bracket retention, known as Return On (Custom) in Amplitude, is a more complex version of Return On retention that involves grouping your measurements into custom periods.
Unbounded or Return On or After retention
Unbounded retention, also known as Return On or After retention in Amplitude, measures the percentage of users returning to your product on one particular day and anytime after.
How to improve user retention
Improving user retention and improving user experience go hand in hand. If users enjoy using and find value in your product, they’ll be more likely to stick around. To improve your retention rate, focus on the tactics that also help you improve customer experiences, like cohort analysis, feedback loops, customer onboarding, and timely updates.
1. Study your users with cohort analysis
Cohort analysis is a data-driven method for comparing how individuals across user groups behave.
2. Offer frequent opportunities for feedback
You have to know how users feel about your product to improve it.
3. Improve your onboarding experience
You only get one shot at a first impression, which is why your onboarding experience is so critical.
4. Leverage push notifications
Push notifications can also improve user retention.
5. Master retention with Amplitude’s Playbook
Ready to check it out for yourself? Download the guide today.
Darshil Gandhi
Director, Product Marketing, Amplitude
Darshil Gandhi is a Director of Product Marketing at Amplitude. He leads competitive intelligence, partner product marketing and technical product marketing. Darshil collaborates with product and go-to-market teams on strategy, positioning, messaging, campaigns, and enablement. He was previously a solutions consulting team principal at Amplitude, and has helped dozens of Amplitude customers turn data into actionable insights. Darshil graduated from Dartmouth College with a Masters in Engineering Management.