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Amol Ghemud Published: January 5, 2023
Summary
We give you insights into the significance of daily active users (DAU) for SaaS and subscription-based companies. Learn about the impact of DAU on business growth, strategies for measuring user retention, and ways to enhance product and service offerings to retain customers. The piece emphasizes the importance of understanding customer engagement and offers guidance on calculating and increasing DAU to foster business success and customer loyalty.
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Introduction
One of the critical metrics in a SaaS business or a subscription-based company is tracking the number of active users on a daily basis. A company would simply be flying blind without paying attention to this metric. Growth in the scale of Daily Active Users (DAU) indicates that new customers are joining the business, and previous ones are actively using the products and services. However, if this number declines, companies need to look after their planned strategy and upgrade or make changes wherever required.
Measuring user retention appropriately and using the data to improve the product and services provided is a vital part of every business strategy. Maximizing user retention not only helps businesses gain profitability but also helps them in acquiring loyal customers for a more extended period.
What is the meaning of Customer Retention?
Customer retention is a simple metric used by multiple businesses to measure their customer loyalty and gauge their overall business success over time. Various businesses and companies come up with well-planned strategies and tactics to better customer experiences, retain them for a more extended period and reduce customer loss.
The retention rate is the percentage of clients or users who use a product, service, or platform for a while. It is a metric that assists companies and organizations in determining how well they can keep their current clientele and gauge client loyalty. The retention rate, sometimes represented as a percentage, offers essential information on the efficiency of a company’s offerings in terms of goods, services, customer satisfaction, and total value.
A high retention rate typically means clients are happy with the firm’s services and continue valuing their relationship with it. A poor retention rate, however, may indicate that customers need help finding the product or service to be alluring enough to keep using it.
The retention rate is a crucial indicator for several reasons.
Customer Satisfaction: High retention rates frequently show customers are happy with the goods or services.
Long-Term Value: Retained clients are more likely to provide more revenue over time than new customers, who could have higher acquisition expenses.
Reduced Churn: A high retention rate indicates that fewer customers are “churning,” which can be expensive in terms of lost income and efforts used to acquire new customers.
Feedback and Improvement: Understanding why customers leave or stay can offer insightful ideas for enhancing goods, services, or customer assistance.
How to Calculate Retention Rate?
The retention rate is calculated by comparing the number of customers or users at the end of a certain period to the number of customers or users at the start. Here’s the formula:
Customer Retention Rate = (Total number of customers at the end of the time frame – New customers acquired) / Customers at the beginning of the period
To break down the calculation step by step:
Determine the Period: Decide on the period for which you want to calculate the retention rate. This could be a month, quarter, year, or any other relevant time frame.
Count Customers/Users: At the start of the chosen period, count the total number of customers or users you have.
Count New Customers/Users Acquired: Count the number of new customers or users you acquired during the chosen period. These individuals were absent from your user base at the start of the period.
Count Customers/Users at the End: At the end of the chosen period, count your total number of customers or users.
Apply the Formula: Plug the values into the formula to calculate the retention rate:
Multiply by 100: Multiply the result of the calculation by 100 to express the retention rate as a percentage
Interpret the Results: The resulting percentage is your retention rate. A higher percentage indicates better customer/user retention, while a lower percentage suggests a higher attrition rate.
The Customer Retention Rate calculation remains incomplete without knowing customer churn. Customer churn is essential for businesses as it helps them understand the percentage of customers who no longer use the products or services during a specific time frame. Customer churn rate can be figured by dividing the customers lost during a time frame by the number of customers a business had at the beginning of that time frame.
What are Daily Active Users (DAU)?
The simplest way of explaining daily active users is the amount of time customers spend utilizing the services or products provided by a particular sector. For example, an e-commerce app could define user interaction as adding items/ products to the cart. In contrast, an online banking app may define DAU as the transfer made by a particular customer. User interaction increases the business’s profitability, success, and overall growth.
How can one calculate Daily Active Users (DAU)?
Calculating Daily Active Users (DAU) is quite simple, but it can vary depending on how the activity is defined for a particular business. DAU is defined as the total number of users per day. Every business has its own credentials that qualify as an active user.
Once the user is defined, total daily active users (DAU) can be given as:
Total Daily Active Users (DAU) = (Unique New Customers) + (Unique Returning Users)
The factors, unique new customers and unique returning users determine and measure how fast a platform attracts new users. A company can create a benchmark based on the previous DAU performance and results. An increase in DAU is a sign that a product or a service has made ‘stickiness’ among the users, whereas a decrease in DAU means that the business will run into a churn.
How to increase Daily Activity Users (DAU)?
In-app texts
In-app texts provide maximum relevance. They are the best segments that help users gain real-time updates to personalized content. In-app texts are not intended for communicating but are very helpful in providing information related to version updates, app issues, or even payment failures.
Using Push Notifications
Push notifications are one of the quickest and most effective ways to engage users with the app. For a rise in DAU, it is essential to determine which push notification might work the best and which wouldn’t.
Using Messages and Emails
Occasional messages and emails are another way to serve the users and keep them engaged with the platform. They work as a reminder for the users to remain active and consistently use the services daily.
Deep linking is the heart
Deep linking is one of the most efficient ways to build a firm and long-lasting relationship with users. A hassle-free user experience will enable users to have a friendly user journey and make them stick to the platform for longer.
Wrapping up Daily Activity Users (DAU)
The prime of businesses and companies is to keep the user engaged with the platform for as long as possible, and not just for a particular day but on an everyday basis. Calculating DAU can be straightforward, but it can turn more complicated depending on how the user activity is defined. Including some factors like re-engagement campaigns, emails, and push notifications offer users a tailor-made value, increasing user engagement, followed by user retention.
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1. What is a good percentage of daily active users?
A healthy daily active user rate is expected to be over 20 per cent. The higher this threshold, the better it is for businesses. This value can make companies understand their marketing tactics’ overall health and effectiveness.
2. How are monthly active users calculated?
Monthly active users (MAU) refers to the number of people who have engaged in a particular platform in some way in the past 30 days.
Monthly active users can be given as:
MAU = Number of active users in a month
3. Why is user retention important?
In addition to directly affecting a company’s or platform’s success, growth, and sustainability, user retention is crucial for a number of reasons. User retention is essential, as evidenced by the following factors:
Revenue Generation: Repeat customers are likelier to buy products or services, renew subscriptions, or use premium services. Over time, they help to create a reliable and consistent revenue stream. Since the price of acquiring new consumers can be higher, it is frequently more economical to keep your current clientele than to search for new ones.
Higher Customer Lifetime Value (CLTV): Long-term customers have a higher overall lifetime worth to your firm, which is measured by customer lifetime value (CLTV). Along with making frequent purchases, they also recommend products, offer comments, and may even end up supporting a particular brand.
Reduced Churn: The attrition rate of your client base, often known as churn, is the percentage of people that discontinue using your product or service. The expansion of a firm may need to be improved by high turnover. To keep your client base constant and even growing over time, effective retention methods help reduce churn.
Better Customer Feedback: Consistent customers frequently offer insightful feedback. They can assist you with locating prospects for new products or services, areas that need improvement, and trends that could impact your company.
Customer Insight and Data: Maintaining clients gives you more chances to collect information about their tastes, routines, and requirements. Your product development, marketing plans, and improvements to the consumer experience can all benefit from this data.
In conclusion, user retention is crucial to creating a successful, long-lasting business. Revenue, consumer satisfaction, and brand expansion are all positively impacted.
4. How do I increase user retention?
Providing value, improving the user experience, and sustaining ongoing engagement are all necessary components of a strategy mix for increasing user retention. Some practical strategies to increase user retention are listed below:
Offer Outstanding Value: Ensure that your product or service truly solves the problems of the target audience by providing outstanding value. Surpass user expectations by monitoring and enhancing the quality of your offerings on a constant basis.
Personalize User Experience: Make advantage of data to learn about user preferences and behavior, then adjust your services as necessary. Based on user history and interests, provide individualized recommendations, content, and experiences.
Simplify Onboarding: Create a friction-free, intuitive initial user experience to ease the onboarding process.
To assist customers in properly using your product, offer tutorials and clear instructions.
Multi-Channel Engagement: To keep up a constant flow of contact, reach users through a variety of channels, including email, and mobile apps.
To meet the needs of each medium, modify your messaging.
Provide Flexibility: Offer adaptable plans or choices that take into account the various needs and financial constraints of users. Users should be able to alter their experience to suit their tastes.
Place a high priority on customer service: Provide quick, useful responses to consumer questions and concerns. User retention and happiness can be greatly influenced by positive support encounters.
5. What are the five key factors of customer retention?
Several elements that work together to sustain a solid and devoted client base impact customer retention. Keeping consumers is primarily influenced by the following important factors:
Customer satisfaction and value proposition: An essential element of delivering value and keeping your promises to customers is ensuring that your product or service lives up to expectations. Providing superior goods, first-rate services, and pleasurable encounters consistently meets or exceeds client expectations.
Effective Communication: Establish open channels of communication with your customers in order to communicate effectively.
Continually inform them about new features, promotions, pertinent news, and product improvements. Transparently and swiftly respond to any questions or complaints.
Making Emotional Connections: Make emotional connections with your consumers by showcasing your comprehension of their problems, objectives, and values.
Create satisfying encounters that inspire emotions like contentment, trust, and empathy.
Consistent and Pleasurable User Experience: Whether it’s your website, app, customer service, or in-store encounters, ensure every user encounter is smooth and delightful.
Reduce friction, eliminate problems, and make utilizing your product or service as simple and natural as possible.
Although these elements are crucial for client retention, it’s important to remember that this comprehensive endeavor calls for attention to numerous facets of your company. You can develop a devoted client base that stays engaged with your business over time by continually providing value, fostering relationships, and prioritizing consumer demands.
Monitoring your customer retention rate provides a direct measure of customer satisfaction and the value your service delivers over time. A high or rising rate indicates a strong product-market fit and operational excellence, while a decline is an early warning of potential issues in your product or customer experience. It moves beyond simple growth metrics to reflect your ability to build a sustainable business. To truly understand this metric's power, you must connect it to key business outcomes:
Customer Satisfaction: A high rate is a strong proxy for happy customers who find ongoing value in your offerings.
Long-Term Value: Retained clients are your most profitable segment, as they generate recurring revenue without the high acquisition costs associated with new customers.
Reduced Churn: Effectively managing retention directly lowers customer churn, stabilizing your revenue base and improving financial predictability.
Analyzing why customers stay offers a roadmap for continuous product improvement. Digging deeper into this data can unlock even more powerful insights for your strategy.
Daily Active Users (DAU) acts as the pulse of your product, showing how many customers are actively engaging with your service on a given day. This metric is a leading indicator for retention because a drop in DAU often precedes a rise in customer churn, signaling that users are losing interest or facing friction. A consistent DAU trend suggests that your product has become an integral part of users' routines. For a SaaS business, this data is invaluable for proactive strategy adjustments and can be used to:
Identify at-risk user segments who show declining activity.
Validate the impact of new feature releases on user engagement.
Pinpoint usability issues or bugs that might be driving users away.
Inform marketing campaigns designed to re-engage dormant customers.
Understanding the nuances of DAU helps you move from reacting to churn to preventing it. To learn more about connecting engagement to retention, explore the full analysis.
A strategy emphasizing high customer retention builds a more stable and profitable foundation than one purely focused on aggressive acquisition. While acquiring new users is essential for growth, retained customers generate predictable recurring revenue at a much lower cost, creating a flywheel of sustainable financial health. The contrast in financial impact becomes clear when you weigh the core differences:
Acquisition Costs: Acquiring a new customer is significantly more expensive than keeping an existing one. High retention minimizes these recurring marketing and sales expenses.
Revenue Predictability: A loyal customer base provides a stable, predictable monthly recurring revenue (MRR) stream, making financial forecasting more reliable.
Long-Term Value (LTV): Retained customers are more likely to upgrade plans, purchase add-ons, and become brand advocates, dramatically increasing their LTV.
Focusing on the customer retention rate shifts your perspective from short-term gains to long-term enterprise value. Discover how to balance both strategies effectively by reading the complete guide.
Leading subscription companies treat retention data not as a historical record but as a live feedback mechanism for future development. They understand that the “why” behind their customer retention rate is more important than the number itself, using this insight to build a customer-centric product roadmap. This approach turns data into actionable strategy. By analyzing the behaviors of highly retained user cohorts, these companies can:
Identify “sticky” features that correlate with long-term loyalty and double down on their development.
Pinpoint common drop-off points in the user journey and streamline the customer experience to reduce friction.
Segment users based on engagement levels to deliver targeted support or educational content, preventing churn before it happens.
This evidence-based approach ensures that every product decision is aligned with what customers truly value. A deeper look at these methods can reveal how to apply them to your own business.
Top-performing SaaS business models prove this principle by meticulously tracking metrics beyond initial sales, focusing on the entire customer lifecycle. They quantify long-term value by linking retention directly to revenue expansion, demonstrating that loyalty is a direct driver of profitability. Their strategies often involve a systematic approach to customer success. These companies typically:
Implement tiered pricing and feature sets that encourage customers to upgrade as their needs grow.
Actively solicit and analyze feedback from their most loyal customers to inform the development of new, premium features.
Use engagement data, such as Daily Active Users, to identify power users and turn them into case studies.
Measure the lifetime value (LTV) of retained cohorts against their customer acquisition cost (CAC).
By doing so, they build a data-backed case for investing in customer satisfaction. Uncover more strategies for maximizing LTV in the complete article.
Calculating your quarterly retention rate accurately requires a precise, systematic approach to avoid misinterpreting your company's health. Following the defined formula provides a clear snapshot of your ability to retain customers over a specific period, which is essential for strategic planning. To get an actionable result, follow this five-step process for your chosen quarter:
Determine the Period: Clearly define the start and end dates of your quarter (e.g., January 1 to March 31).
Count Starting Customers: Tally the total number of active customers you had on the first day of the period.
Count Ending Customers: Count the total number of active customers you have on the last day of the period.
Count New Customers: Isolate and count only the new customers that were acquired during this specific period.
Apply the Formula: Use the calculation: (Ending Customers – New Customers) / Starting Customers, then multiply by 100 to get your customer retention rate.
This method of isolating existing customers gives you a pure measure of loyalty. For more detail on how to interpret this result, see the full breakdown.
A consistently high customer retention rate creates a powerful economic engine that fuels long-term growth and innovation far beyond simple revenue stability. This stability provides a predictable financial foundation, reducing risk and allowing for more strategic, forward-looking investments rather than reactive spending. The cascading effects compound over time. For a subscription-based company, this manifests in several key areas:
Increased Profitability: Lower acquisition costs and higher customer lifetime value lead directly to wider profit margins.
Improved Cash Flow: Predictable, recurring revenue from a loyal base ensures consistent cash flow to fund operations and R&D.
Higher Valuation: Investors prize predictable revenue streams, so companies with high retention often command higher market valuations.
This virtuous cycle of retention and investment allows you to innovate from a position of strength. Explore the full strategic implications of this dynamic in the complete article.
The most common mistake is creating a “leaky bucket,” where a company spends heavily to acquire new customers who quickly churn due to a poor experience or a lack of ongoing value. This approach is financially unsustainable because the high customer acquisition cost is never offset by long-term revenue. To fix this, you must rebalance your focus toward sustainable relationships. A successful recalibration involves:
Measuring Both Sides: Track customer lifetime value (LTV) and customer acquisition cost (CAC) together. If CAC exceeds LTV, your model is broken.
Investing in Onboarding: Ensure new users achieve their first “win” quickly to demonstrate your product's value from day one.
Creating Feedback Loops: Systematically collect feedback from churning customers to identify and fix the root causes of their departure.
Shifting focus to the customer retention rate ensures your growth engine is efficient. Find out how to build a balanced strategy in our detailed analysis.
A declining DAU is a critical warning sign that requires immediate, data-driven investigation to prevent increased churn. The product team must move beyond simple observation and dig into user behavior to understand the “why” behind the drop, treating the diagnosis like a scientific process. An effective plan of action should include the following steps:
Segment the Data: Analyze if the DAU decline is universal or concentrated in specific segments.
Analyze User Behavior: Use analytics tools to see where users are dropping off. Are they failing to use a key feature?
Collect Qualitative Feedback: Deploy in-app surveys or reach out directly to recently lapsed users to ask why their usage has decreased.
Formulate and Test Hypotheses: Based on the data, develop a hypothesis and run an A/B test to validate a potential solution.
This structured approach helps you make informed product changes. Discover more techniques for reversing user disengagement in the full guide.
Established SaaS platforms view customer churn not as a failure, but as an invaluable source of market intelligence. They systematically analyze why customers leave to identify and remedy weaknesses in their product and strategy, ensuring they do not lose future customers for the same reasons. This feedback loop is crucial for long-term relevance and growth. Their process for leveraging this data typically includes:
Conducting Exit Interviews: Speaking directly with churning customers to get unfiltered feedback on product gaps, pricing, or competitors.
Categorizing Churn Reasons: Grouping churn data into categories like “missing features” or “poor support” to spot trends.
Mapping Churn Data to the Roadmap: Prioritizing feature development that directly addresses the most common reasons for churn.
By treating churn analysis as a strategic asset, they strengthen their customer retention rate over time. This proactive approach is a hallmark of market leaders.
In increasingly saturated markets, customer retention is evolving from a simple operational metric into a core strategic pillar and a primary competitive advantage. With customer acquisition costs rising, the ability to build and maintain a loyal user base is what separates market leaders from the rest. Your perspective must shift from seeing retention as defensive to viewing it as an offensive strategy. This evolution is critical because:
Loyalty is a Moat: A loyal customer base is harder for competitors to steal than unattached new users.
Brand Advocacy Scales: Happy, long-term customers become your most effective and cost-efficient marketing channel through word-of-mouth.
Data Advantage: A stable user base provides richer, more consistent data, enabling better product personalization and innovation.
Your customer retention rate is no longer just about preventing loss, it is about creating lasting value. The full article explores how this shift impacts future business planning.
A poor customer retention rate is a clear signal that your product is not delivering on its perceived value for a significant portion of users. The most effective way to address this is to map the customer journey against your value proposition to pinpoint where the experience breaks down and expectations are not met. This requires a deep, methodical investigation. The solution involves a structured process:
Interview Churned and Retained Users: Compare the experiences of both groups to find what “aha!” moment churned users missed.
Review Onboarding Analytics: A high drop-off rate during onboarding often means users never discover the core features that deliver value.
Analyze Support Tickets: Recurring complaints can highlight areas where the product is confusing or fails to meet user needs.
By systematically diagnosing this disconnect, you can make targeted improvements that align your product with customer expectations. Explore the full guide for more on bridging this value gap.
Amol has helped catalyse business growth with his strategic & data-driven methodologies. With a decade of experience in the field of marketing, he has donned multiple hats, from channel optimization, data analytics and creative brand positioning to growth engineering and sales.
Growth Strategy and Planning
