In an uncertain market, where the cost of acquiring new customers remains high and businesses are striving to do more with less, retaining existing customers is more important than ever. Businesses need to understand not only how many existing customers are failing to return to their app each month, but why. That’s why it is essential for companies to consistently measure Churn.
Churn is a powerful KPI that measures business performance and the overall health of an app’s active user base. Put simply, Churn is the percentage of customers who do not return to use your app over a given time period. For example, if your app had 100 active users in February, and 80 active users returned to your app in March, your month-over-month churn rate would be 20%. Churn is used hand-in-hand with retention and enables businesses to better understand how many active users are and are not returning to the app each month. A high retention rate and a low churn rate indicate strong business performance and a healthy, active user base.
There are many ways to calculate Churn that can be confusing and time-consuming if not done correctly. That’s why we’ve launched Churn Analysis, a powerful tool that allows you to seamlessly monitor retention trends and churn rates over time, so you can make more informed business and investment decisions. Let’s dive into how Sensor Tower’s Churn Analysis can help you assess business health, benchmark performance, and elevate your business strategy.
In the midst of an uncertain market, where customers are more selective with how they spend their money, companies heavily rely on repeat business from satisfied customers. Acquiring new customers is expensive, and it’s difficult to predict how engaged a new user will be with your app. Existing customers have history with your app, making it easier to predict user engagement trends. Retaining these customers is the most cost-effective way to sustain business performance and proves a strong indicator of successful business performance. A company with strong retention rates and low churn can further invest in new initiatives and accelerate the growth of their app, knowing they have an engaged and loyal customer base.
As an investor, it’s important to monitor how well a company retains existing users, and, conversely, how often they churn, to forecast overall business performance. If App A has a high active user volume and a high churn rate, that may indicate they are successfully gaining new users but failing to retain these users. This may also mean they are investing a large amount in new user acquisition but are not reaping the benefits of the active user base, because they fail to engage those users. App B has a lower new user rate and a lower churn rate. An investor may feel more comfortable investing in App B knowing they are better retaining their active user base, and are more likely to generate stronger business results.
So, how much churn is too much churn? That depends on a multitude of factors such as your industry, geographic location, seasonality, and more. Churn Analysis enables you to benchmark performance against similar apps in your market and geography to make meaningful decisions about product enhancements and marketing efforts. For example, Health & Wellness apps may experience higher Churn rates in Q1 compared to the rest of the year, after a high volume of new users download apps for the first time as part of their New Year’s resolutions, and then churn as the year goes on. By understanding this industry-specific trend, Health & Wellness apps can optimize their marketing and product strategies knowing they will only likely retain a certain percentage of those new users.
Benchmarking is also important for identifying weaknesses in your app. For example, if you are a food delivery app with higher than average churn compared to other players in your market, you may need to reassess your business model or app usability. For example, App A offers a promotion that includes free delivery for your first order, then charges $5 per delivery. App B charges $2 per delivery with no promotions. App A has a higher volume of new users each month, but also has a much higher churn rate than App B. After monitoring industry trends and noticing that their churn rate is higher than all other competitors, App A can conduct competitive research on aspects of the business including customer experience, app quality, pricing, service, delivery, user perks, and more, to understand why their customers are ultimately churning and using one of their competitors. In the end, App A may find that their delivery fee is well above average and adjust it accordingly to retain more users. In this example, Churn not only shows you how many active users are not returning each month, but can help you understand why so you can optimize your business to retain more customers in the future.
Businesses need customers to survive. Without an active user base, apps would not drive enough revenue to operate. And while monitoring active user volume is crucial for all apps, without Churn, the active user metric lacks enough context for businesses to make the strategic decisions necessary to flourish.
As mentioned, businesses need to monitor Churn to make data-driven business, product, marketing, and investment decisions. Forecasting churn helps businesses understand the rate at which they are growing, so they can determine what resources they will need to invest in to sustain this growth. From budgeting for headcount, marketing activities, product enhancements, and strategic partnerships, businesses need an effective way to predict how many active users will leverage their app in any given time frame to accurately predict business earnings.
And this measurement goes beyond preparing for the future. Businesses can make informed decisions for the present moment, such as understanding how an app update or new marketing campaign impacts active user rates. If a new app enhancement causes churn rates to skyrocket, app developers can roll back the new enhancement to the older version of the app, and leverage marketing support to resurrect the churned users. If a marketing campaign drives a high volume of new users to the app, marketing teams can continue to run that campaign continuously as it proves successful.
Active Users are the pulse of an app’s performance, and accessing more granular insights in active user performance, like Churn, enables businesses to succeed and grow despite any economic headwinds that arise. Sensor Tower’s Churn Analysis is included with a Consumer Intelligence subscription. If you would like more information on Consumer Intelligence or a demo of the product, please reach out to your Account Manager.
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Written by: Melissa Hoey, Product Marketing Manager
Date: January 2023