Mobile User Retention vs. Mobile Revenue per User
Mobile application developers and publishers currently optimize for Monthly Revenue per User (MRPU), which is a massive oversight. This mistake lies in the imperative to find a balance between user monetization and user retention.
Similar to small businesses, app developers focus on generating short term gains to ensure cash flow. While monthly revenue is key to staying afloat and maintaining a viable business, developers should play the long game. A user’s Lifetime Value (LTV) is based on the average revenue per user, average user lifetime (read: retention), and the annual costs required to support each user. Ignoring costs, this presents you with two opportunities:
i) to increase Mobile Revenue per User
ii) to increase Monthly User Retention (a.k.a. minimize Monthly Churn)
I’d personally put effort into the latter, and here is why:
In order to increase Monthly Revenue per User, an app developer must sacrifice, to a certain extent, User Experience (UX). As a result of UX and pure stickiness of an application, mobile user retention has proven to be extremely difficult – as captured in a previously shared statistic generated by Apptentive and shared on The Moz Blog “a mobile application retains a mere 4% of users 12 months after initial download.” Overall, the average app sees 76% of new users in the first 3 months disengage after the initial download.
The opportunity in mobile is retained user engagement.
As a result of minimizing monthly churn, the lifetime value per user increases. Simple math:
Original Application:
– Monthly Revenue per User: $1.00
– Monthly Churn: 20%
– Monthly User Adoption: 210
– Current Download: 1,000May Revenue: Monthly Revenue per User (x) Current Downloads (=) $1,000.00
June Revenue: Monthly Revenue per User (x) ((Monthly Churn (x) Current Downloads) (+) Monthly User Adoption) (=) $1,010.00Minimizing Churn by 50%:
May Revenue: Monthly Revenue per User (x) Current Downloads (=) $1,000.00
June Revenue: Monthly Revenue per User (x) ((Monthly Churn (x) Current Downloads) (+) Monthly User Adoption) (=) $1,110.00
In this high-level example, minimizing churn by 50% results in a monthly increase of 9.9% in revenue. While minimizing the interruption on the user’s experience will result in slightly lower Monthly Revenue per User (i.e. less invasive ad units, less impressions per user per app use, etc.), the reverse – increasing Monthly Revenue per User – will more severely increase the rate of Monthly Churn of the application. It would be my focus, as a mobile publisher, to focus on increasing Monthly User Retention (minimizing churn) to increase the Lifetime Value of my user base.
If a mobile publisher focused solely on optimizing Monthly Revenue per User, without investing in the retention of users, the math might look slightly different, and result in lower Lifetime Value per user:
Original Application:
– Monthly Revenue per User: $1.00
– Monthly Churn: 20%
– Monthly User Adoption: 210
– Current Download: 1,000May Revenue: Monthly Revenue per User (x) Current Downloads (=) $1,000.00
June Revenue: Monthly Revenue per User (x) ((Monthly Churn (x) Current Downloads) (+) Monthly User Adoption) (=) $1,010.00Increasing Monthly Revenue per User by 5%:
May Revenue: Monthly Revenue per User (x) Current Downloads (=) $1,000.00
June Revenue: Monthly Revenue per User (x) ((Monthly Churn (x) Current Downloads) (+) Monthly User Adoption) (=) $1,060.50
In this high-level example, increasing Monthly Revenue per User by 5% results in a monthly increase of 5% in revenue. A nominal amount when minimizing Monthly Churn by focusing on Monthly User Retention resulted in nearly a 10% bump in revenue.
The key to the longterm sustainability of an application is ensuring the LTV meets or exceeds the Customer Acquisition Cost (CAC).
As Sundeep Peechu, General Partner at Felicis Ventures, shared at Source14, search allowed anyone with LTV greater than CAC to target new users and generate sustainable revenue. However, on mobile you can’t pay to be displayed in search in both the iOS and Android app stores. The only space for paid media and promotion is in-app, on screen real estate – so only the market leaders with deep pockets can gain momentum and vitality in organic lift.
Mobile retention and user engagement is the name of the game. What is your strategy?