The Important Calculus Behind Retention Rates

In today’s fast-moving, over-complicated app developer ecosystem, retention rates are still an important way for app and game developers to evaluate user engagement, gauge the effectiveness of their product, and identify areas for improvement.  

Retention rates refer to the percentage of users who continue to use an app or game over a specified period of time. It’s a key metric that indicates the ability of the app to retain and engage users, and it’s a highly effective way to track user engagement and estimate revenue potential and cost-effectiveness. 

Higher retention rates indicate that users find value and satisfaction in the app or game, leading to longer-term usage and a stronger user base. By focusing on retaining users, developers can build lasting products and establish a stronger position in the competitive app market. 

Why are retention rates so important 

Retaining users is key to understanding how engaged and satisfied they are with your app or game and the likelihood that they will continue to engage with it over time. This engagement can lead to word-of-mouth referrals and positive reviews, which can contribute to an app's success. 

The many other ways that retention rates help app developers include: 

• Monetization: Retention directly impacts the revenue potential of an app or game. Longer retention rates mean users are more likely to make in-app purchases, upgrade to premium versions, or engage with advertising. By retaining users, app and game developers have a better chance of generating sustainable revenue streams. 
• User Acquisition Cost: Acquiring new users can be expensive, especially in a competitive market. Higher retention rates reduce the need for constant user acquisition efforts. Instead of focusing solely on acquiring new users, developers can prioritize retaining existing users, which can be more cost-effective in the long run. 
• Iterative Improvements: Retention rates provide valuable feedback for developers to improve their products. By analyzing user behavior and identifying points of drop-off or dissatisfaction, developers can make informed decisions about updates, feature enhancements, bug fixes, and overall user experience improvements. This iterative process helps in creating a more compelling and engaging app or game that aligns with user preferences and needs. 

How do you calculate retention rates? 

To calculate retention rates for app and game developers, you need to follow these five steps: 

1. Decide on the time interval for which you want to calculate the retention rate, such as daily, weekly, monthly, or any other specific duration. 
2. Select the cohort of users you want to analyze. This could be the users who installed the app or game within a specific time frame, for example, or all users who installed in a particular month. 
3. Define the duration for which you want to measure retention within the selected cohort. For example, if you choose to measure monthly retention, you could track how many users from the initial cohort continue to use the app or game in the following months. 
4. To calculate the retention rate, you need the number of users who remain active within the specified retention period and the total number of users in the initial cohort.  
5. If you want to track retention rates over multiple periods, repeat the calculation for each subsequent period within the desired timeframe. 

How do you measure retention rates? 

Retention rates are typically measured over specific time intervals and determine the percentage of users who continue to use the app or game within a month of their initial installation. Retention rate can be calculated using the following formula: 

• Retention Rate = (Number of retained users / Number of total users) * 100 
• For instance, if an app has 1,000 users at the beginning of the month and 700 of them continue to use the app by the end of the month, the retention rate would be 70% for that month. 

What are basic retention rate benchmarks? 
Retention rate benchmarks can vary depending on factors such as the industry, app category, target audience, and geographical region. However, here are some general benchmarks that can serve as a reference: 

• Day 1 Retention: This measures the percentage of users who return to the app or game on the day after they first install it. A strong benchmark for day 1 retention is typically around 40% to 60%. 
• Day 7 Retention: This measures the percentage of users who continue to use the app or game seven days after installation. A benchmark for day 7 retention can range from 20% to 40%. 
• Month 1 Retention: This measures the percentage of users who remain active in the app or game for the first month after installation. A benchmark for month 1 retention can vary between 10% and 30%. 
• Year 1 Retention: This measures the percentage of users who continue using the app or game one year after installation. A benchmark for year 1 retention can range from 5% to 15%. 

To assess the performance of an app or game, compare retention rates against these benchmarks, analyze trends over time, and also consider industry-specific or competitive benchmarks. This allows developers to understand their users' engagement levels, identify areas for improvement, and set realistic goals for retention optimization. 

Retaining users is the name of the game 

Building a loyal and dedicated user base is essential for the long-term success of an app or game. High retention rates contribute to user loyalty and satisfaction, resulting in longer user lifecycles and increased user lifetime value. This can lead to sustained revenue, brand recognition, and even potential opportunities for sequels, expansions, or future projects.  

Different industries or app categories may have different retention expectations. Additionally, factors such as app quality, user engagement, marketing efforts, and monetization strategies can all influence retention rates. 

This blog post was written in partnership with ChatGPT. To learn more about how InMobi can help elevate your mobile marketing approach, please contact us at Hello@InMobi.com.