How to actually calculate retention

We all have our set of metrics and our own concept of retention and how to calculate it. The aim here is not to provide a consensus on whatever formula you're using but to highlight what you might miss when considering retention and how it can challenge your current analysis.

(re)Defining retention

Retention is generally calculated through the retention rate. It's like the north star metric of retention. We consider all the returning users equal but how did they really come back?

Returning users can come from pure retention (ie. they kept your app installed or bookmarked your website), paid reacquisition or organic reacquisition.

So while we keep focusing on retaining users rather than acquiring new ones to better manage spending; it turns out that retention can hide costs you are not fully aware of.

With this new thing in mind, it then changes how you actually measure retention.

Retention vs. reacquisition

Considering that you reacquire a % of your returning users either by spending again in ads or by spending in another channel, retention data needs to be split as is:

Returning users = organic retention vs. paid reacquisition vs. organic reacquisition

It's important to distinguish pure retention (organic) from reacquisition. On one hand, your user is coming back thanks to the excellent user experience you're offering. On the other hand, your user ran a search again for your product or service and ended up clicking on whatever leads to you: ad, blue link, etc.

These two users are definitely not the same and can't be treated as equal. Pure retention means that you succeeded in providing the best answer possible to your user's need. Reacquisition means that your product or service is not powerful enough for your brand to be remembered.

The split between acquisition and reacquisition change how you consider retention from a global point of view. You don't have one retention type anymore but several depending on your acquisition strategy in the first place and you have to weigh them differently as they do not imply the same ROI in fine.

Impact on retention tactics

Reacquisition implies new things to think about when weighting ROI. First of all, it shows that even if a user used your product or service once, it wasn't good enough for your user to keep it or remembered it. It has an implied cost related to both product and marketing you need to take into account when measuring retention (or more simply: reacquisition). Reacquisition can be as expensive as a first acquisition as well.

Spend comparison between new & returning users on Apple Search Ads

As reacquisition also implies that users don't remember you as you would think in the first place, it changes how you communicate. You have different type of returning users and you can't use the same arguments to promote your product.

Promoting your product or service shouldn't be a question when focusing on your returning users. The best scenario being returning users coming back thanks to the answer you provided originally.

In this context, how to increase the share of organic retention?

To answer this question, you need to focus on your attribution model first: make sure to properly identify the channels used by your returning users. It will give you enough context to measure a retention ROI by type of returning users.

Final thoughts

Returning users can be as expensive as your new users and especially, they can highlight how you fail in marketing your product or service as well as in the experience you're offering.

Measuring your returning users depending on the channel used should have an effect on your global retention analysis and provide enough context to iterate on increasing the share of pure organic retention.

Especially true with mobile apps acquisition since the IDFA apocalypse and user privacy regulations, we need to deal with the lack of granularity. It's a big challenge for data teams as well.

Reconsidering retention metrics leads to better split retention by usage and retention through reacquisition.