Many companies are obsessed with active users. They check this metric daily and they judge the success of their efforts based on it.
Only active users bring money in. On-lookers don’t count.
What are Active Users?
Active users are identifiable users who interact with your business at least once within a specified period of time. If users don’t have any interaction with your product within this time-frame, they will be considered engagement churned users.
1. What does ‘identifiable users’ refer to?
Identifiable users are users who are required to create an account and login for any interaction with your product. Why? Because, for accurate results, you need to make sure that:
- if a user logs in from 3 different devices he is counted as one user, not as 3 different users.
- if a user visits your app every day of the week, he is counted as a single user, not as seven different users.
2. What is the average time interval used for monitoring active users?
Active users are usually reported on a daily, weekly or monthly basis depending on the type of product you are providing.
- Daily Active Users (DAU) – typical for businesses where users are expected to interact on a daily basis (email, calendar, games).
- Weekly Active Users (WAU) – typical for businesses with weekly frequency (forums and social communities, mobile apps, productivity & analytics tools).
- Monthly Active Users (MAU) – typical for many B2B apps where users are expected to interact only a few times a month or less (email providers, accounting & bookkeeping).
Types of active users
There are 2 types of active users:
- New users – are the users that, in a specified period, interacted with your app for the first time.
- Returning users – are the users that keep coming back to your app.
*Note: if you manage to recover a lost user, he becomes a returning user.
Monitoring Business Growth
Is it enough to use the active users metric in order to monitor the trend of your business growth?
Think about it: have you been wondering why your revenue is not up to up par even if you have been increasing the number of active users?
What were you doing wrong? Where’s the mistake?
You were more than likely only looking only at the active users. Focusing on the new sign-ups gives a false sense of growth, as many of them churn immediately.
The active users metric gives you a precise idea of how many users interact with your business at least once within a specified period of time. But that’s it!
Active users are only half of the story. However useful this KPI is, it cannot solely offer you an accurate and comprehensive image on the growth of your business in the long run. Not unless you consider it together with another essential key performance indicator (KPI): churn.
The safest and quickest way to analyse your growth trend is by monitoring your Net Active Users.
What is the Net Active Users Metric?
Net Active Users is a KPI that can give you a pretty precise idea of your company’s growth trend very early in the game. It is calculated as follows:
Net Active Users = (New Users + Returning Users) – Churned Users
Basically, not all your active users (new users + returning ones) are going to stick with your app and pay for your services. Some of them will abandon the product for various reasons and churn. And this is what the net active users metric shows you: how many users you can actually count on within a given time period.
When talking about the new users, it is important to count the number of on-boarded users in determining their number and not how many sign-ups you have, since the number of sign-ups is prone to significant fluctuations which don’t automatically become paying customers.
Let me give you an example. This is what the graph for net active users looks like.
- If the active net users line is in the dark blue area (showing the new on-boarded users) – you are doing well. Your churn is lower than the number of new users.
- But if the active net users line is in the light blue area (showing the returning users) – you have a problem! The number of churned users is bigger than the number of new users.
Net active users shows you the growth trend of your company. Analyse this trend, and you will find out how your various campaigns and actions have impacted your growth, and see if the company is going in the right direction or not.
Interpreting the Net Active Users Metric
Let’s assume your business is stagnating. In fact, plateauing is a very common issue in any industry. This means that: the number of new users = the number of churned users.
In order to register growth, you have 2 options:
- Bring in more users, or
- Increase retention
But in order to choose the right growth strategy, you first need to analyse within which area your company is lagging behind. And this is where the Net Active Users metric comes in.
In case your Net Active Users metric is stagnating or decreasing, the following table shows you where your problem lies:
Problem and Solution
1. Is this your problem? Low churn rate / Low number of new users
If so, this is your solution: You’ll need to increase your marketing efforts in order to grow your customer base. In other words, to increase the new active user base you must make sure you have more new users than churned users.
2. Is this your problem? High churn rate / High number of new users / Consistent number of returning users
If so, this is your solution: You’ll need to review your marketing strategy. Your current marketing campaigns are bringing in low quality users who realize your product is not what they need or what they were expecting.
3. Is this your problem? High churn rate / Consistent number of new users
If so, this is your solution: You’ll need to study the competition and make improvements to your product to ensure it is competitive in the market. Your current product is not up to par any longer and users are seeking out alternative solutions.