Is your business stagnating? Net Active Users might tell you why

Many companies are obsessed with active users. They check this metric daily and they judge the success of their efforts based on it.

So… 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 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 interact a few times a month or less (email providers, accounting & bookkeeping).

Types of active users

Active users are of 2 types:

  • New users – they are the users that, in a specified period, interacted with your app for the first time.
  • Returning users – they are the users that keep coming back to your app.
    Note that if you manage to recover a lost user, he becomes a returning user.

But 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?

Most probably you were 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 on 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 to monitoring your Net Active Users base.

So what exactly 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 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 how 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.

The 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.

How can you use 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:

  • To bring in more users, or
  • To increase retention

But in order to choose the right growth strategy, you first need to analyse 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:

Author: Claudiu Murariu

InnerTrends' founder and lead analyst Claudiu Murariu is also the author of DataDiary, a newsletter about and for companies that use data in their business decision making process. You can follow him on Twitter @cllaudiu.