User retention refers to the number of individuals who continue to engage with a product over a certain timeframe. Organizations monitor this metric keenly, recognizing its direct link to the health and success of their products. Unlike customer retention, which assesses the ongoing financial relationships customers have with a product or service, user retention zeroes in on the actual engagement levels—how frequently and consistently users interact with the product.

Distinction between user and customer retention

User retention and customer retention, while often mentioned in the same breath, address different areas of business analytics. User retention focuses on the active engagement of users with a product. For example, a software application’s user retention would be measured by how frequently users log in and utilize its features.

On the other hand, customer retention concentrates on the financial relationship between a business and its customers. It measures how many customers continue to pay for a product or service over time. In a B2B context, a customer could represent an entire organization, while the users are the individual employees who interact with the product.

The user retention rate formula

To calculate the user retention rate, you can use the following formula: Start by subtracting the number of new users acquired during the period from the number of active users at the end of the period. Then, divide this result by the total number of active users at the beginning of the period. Finally, multiply the quotient by 100 to get the percentage. This percentage reflects the proportion of users who continue to engage with the product over the specified timeframe.

For an accurate assessment, companies must define what they consider an “active user.” Definitions can vary—some companies may count users as active if they log in once a month, while others might require daily interaction. The chosen timeframe for analysis is equally critical. Whether it’s weekly, monthly, or quarterly, the timeframe should align with the product’s nature and the company’s strategic goals.

4 strategies for growing user retention

1. Cohort analysis

Cohort analysis enables businesses to dissect their user base into distinct groups based on shared characteristics or behaviors. Such segmentation offers a granular view of how different user segments interact with a product over time. For instance, companies might categorize users by their sign-up dates, geographic locations, or the marketing channels through which they discovered the product.

This method exposes patterns and trends that might remain obscured in a more generalized analysis. For example, a cohort analysis might reveal that users who signed up during a particular promotional campaign exhibit higher retention rates compared to those who joined at other times. With this knowledge, a company can refine its marketing strategies to replicate successful campaigns and boost overall user retention.

Moreover, cohort analysis aids in identifying the lifecycle stages where users tend to drop off, enabling targeted interventions to enhance retention. Companies can tailor their communication, offer specialized support, or introduce features that address the specific needs and preferences of different user cohorts.

2. Leveraging customer feedback

Customer feedback offers direct insights into users’ experiences, preferences, and pain points. Regularly gathering and acting upon customer feedback demonstrates to users that their opinions are valued, fostering a sense of loyalty and encouraging continued engagement with the product.

Businesses rely on various methods to collect feedback, such as surveys, user interviews, suggestion boxes, and review analysis. Analyzing this feedback helps companies pinpoint areas for improvement, whether they relate to user interface enhancements, feature additions, or bug fixes.

Engaging with customers through feedback channels can help identify brand advocates who can provide valuable testimonials or case studies. These success stories assist marketing efforts and contribute to building a positive community around the product.

For instance, if recurring feedback highlights confusion around a particular feature, a company can take steps to simplify the feature or enhance its documentation. Similarly, positive feedback about certain aspects of the product can guide the development team to focus on and expand these well-received features.

3. Optimizing onboarding experience

A well-crafted onboarding experience acts as a key gateway for new users, setting the stage for how they perceive and interact with a product. An intuitive and engaging onboarding process helps users understand the product’s value and guides them through its core functionalities, reducing initial friction and potential confusion.

To optimize the onboarding experience, companies can implement a range of strategies. Interactive tutorials and walkthroughs can familiarize users with the product’s interface and features in a hands-on manner. Personalized onboarding flows, which adapt based on the user’s role, industry, or preferences, can make the learning process more relevant and engaging.

Statistics suggest that an effective onboarding process can enhance user retention significantly. For example, a report by Wyzowl indicates that 8 out of 10 users have abandoned an app due to a lack of understanding of how to use it. This statistic highlights the direct correlation between onboarding clarity and user retention.

Providing accessible and timely support during onboarding can prevent user drop-off. This support might include in-app chat support, comprehensive FAQs, or video guides. Continuously analyzing user feedback and behavior during the onboarding phase can offer insights into areas for improvement, allowing businesses to refine their onboarding processes continually.

4. Leveraging push notifications

Push notifications help to maintain user engagement and encourage regular interaction with a product. When used strategically, these notifications can remind users of unfinished tasks, alert them to new features, or prompt them to engage with the product at optimal times.

Bombarding users with too many notifications can lead to annoyance and app uninstalls. In contrast, personalized and timely notifications can enhance user experience and retention. For instance, a study by Marketing Drive shows that personalized push notifications can increase open rates by up to 800%.

Segmentation also plays a key role in the strategic use of push notifications. Analyzing user behavior and preferences helps companies tailor their messages to resonate with different user segments. 

For instance, a fitness app might send workout reminders based on a user’s preferred exercise time, while an eCommerce app might alert users about a sale on items they’ve previously shown interest in.

A/B testing different messaging strategies can further help identify the most effective approaches for engaging users. Continually refining their notification strategies based on user engagement metrics helps companies create a more personalized and interactive user experience, leading to higher retention rates.

Industry benchmarks and retention metrics

Understanding industry benchmarks and retention metrics provides companies with a roadmap to evaluate their performance against peers and identify areas for improvement. Different industries exhibit varying user retention rates due to their unique market dynamics, customer behaviors, and product usage patterns.

Retention rate benchmarks

Retention benchmarks are a valuable indicator of industry standards, helping businesses set realistic goals and strategies. Taking a look at the real world, in the energy and utilities sector, a high retention rate of 89% reflects strong customer loyalty and possibly lower competition or higher switching barriers. Conversely, the wholesale industry faces challenges with a lower retention rate of 44%, possibly due to higher competition, price sensitivity among customers, or the transactional nature of business relationships.

Companies strive to understand the factors contributing to these benchmarks to implement targeted strategies for improving user retention. They analyze customer needs, industry trends, and competitive offerings to tailor their user engagement and retention tactics.

Alternative retention metrics

Beyond the standard user retention rate, alternative metrics like N-Day retention or Return On (Custom) retention provide nuanced insights into user behavior and engagement over specific timeframes.

N-day retention

N-Day retention helps businesses understand user engagement by tracking the number of users who return to the product on a specific day after their initial interaction. For instance, analyzing user behavior on Day 1, Day 3, Day 7, etc., reveals patterns and trends in user engagement, helping companies identify when users are most likely to return or drop off.

Return on (custom) retention

Return on (custom) retention allows companies to customize the time periods for analyzing user retention, adapting the metric to the unique usage patterns of their product or service. For example, a fitness app might track user engagement over the duration of a six-week program, identifying at which stages users are most likely to continue or cease using the app. This metric enables businesses to pinpoint critical moments in the user journey and develop strategies to enhance engagement and retention at those stages.

The relationship between retention and churn

User retention refers to the percentage of users who continue to use a product over a certain period. A high user retention rate suggests that a product successfully meets user needs, encouraging continued use. Consistently high retention rates are often associated with strong user loyalty, enhanced customer satisfaction, and increased profitability for the company.

Churn rate, on the other hand, indicates the percentage of users who stop using a product within a specific timeframe. A rising churn rate can alert a company to potential problems with its product or service, such as user dissatisfaction, lack of engagement, or competitive disadvantages. High churn rates can lead to decreased revenue and can reflect negatively on a company’s brand reputation.

Monitoring these rates over time helps businesses identify trends, predict future behavior, and implement strategies to grow both user engagement and satisfaction. Companies often strive to identify the root causes of churn to develop targeted retention strategies, such as improving user experience, offering personalized content, or making improvements to customer support.

Tim Boesen

March 19, 2024

8 Min