What’s the most important number for your mobile business? Or to put it another way, what’s the number you check first thing in the morning when ‘taking the pulse’ of your organization’s mobile health? Write that down on a piece of paper and we’ll take a look in a moment.
In most cases the answer you are likely to hear to that question is one of three: daily active users (DAU), new users, or revenue.
Now look at your piece of paper. If you picked either new users or revenue, I will offer partial congratulations. Both perfectly sound metrics. If you chose DAU, I have some bad news for you: you’re giving too much importance to a metric that fails on two counts - and probably the only two counts that matter:
- It doesn’t necessarily correlate with the success of your business (with some exceptions, such as media businesses that monetize via broad reach advertising)
- It is difficult to directly influence, so provides a poor way to measure the results of your efforts, in whatever area they happen to be
DAU Doesn’t (Usually) Mean Actual Success
There is a reasonable argument that DAU is the ultimate vanity metric. There’s no question that it feels great to have millions of users. When talking to your peers you can rattle off a suitably impressive number that makes you look good. But that’s the very definition of vanity.
The problem arises when we consider that there isn’t a particularly strong correlation between DAU and revenue. Or at least, there isn’t necessarily a particularly strong correlation. Instead, what actually matters in most cases is revenue. In whatever way you choose to monetize your user base, your success in doing that is what counts.
If we compare mobile to other channels that should become apparent. I am sure that a typical e-commerce business takes a look at daily web visitors. But I am equally sure it isn’t a number that rules their world (I know because I used to work in that particular universe). Sure it might be used by the marketing department when looking for credit for their latest TV campaign, and it’s important to know the number in order to understand conversion rates. But it certainly is not an end in itself.
So why have we, in the app industry, decided it is? Answers on a postcard please!
A ‘Watcher’s Metric’
But wait - surely DAU is central to a successful app? Isn’t it true to say we need a lot of users in order to generate a lot of revenue? Well, firstly - no, it isn’t. Plenty of smart businesses develop apps for small or smallish groups of users and then benefit from the greatly increased engagement they deliver. In many businesses the overwhelming majority of profit actually stems from a small percentage of users, so there’s no reason why chasing huge numbers of users necessarily makes sense for businesses in a range of verticals.
But let’s leave that aside for a moment and accept that a large number of DAU is more likely to drive greater revenues. That still doesn’t mean DAU matters much. And here’s why: metrics that matter are those that define the business and that you can change. DAU isn’t one of them.
There are, in fact, only three - or at least only three when it comes to most apps:
- New users, or acquisition
- Retention (however you choose to define this - it’s complicated!)
- ARPU or lifetime value (LTV) per user
DAU, therefore, is a product of acquisition and retention. So whilst we could simplify things by claiming that ARPU and DAU are all that matters, that wouldn’t really help us as a business. The reason being that DAU isn’t a metric that is ‘useful’ in terms of driving change on the ground.
If I want to increase new users, I know who to call and what to do. If I want to drive retention, I understand the techniques to apply and I can put them into practice. DAU doesn’t fit that model. It is a product of two functions rather than a leading indicator and not something for which responsibility can be devolved to one person.
If you doubt that - ask yourself this question: if DAU increased in your app, who would you give credit to? In most cases that’s not an easy question to answer.
What You Should Care About
So if DAU isn’t what matters, what should we be looking at? Well, the answer is above. But here’s some more detail.
- New users may not correlate with revenue, and of course paying too much for them equates to negative ROI. But nevertheless, with no users at all we cannot generate revenue. And there is a clear, easy to understand responsibility in this area. Everyone has an acquisition function.
- Similarly, retention matters. Within this field measurement can take many forms - but the bottom line is understanding how many of your user base you are holding onto, and how engaged they are.
- And lastly - conversion, or if you prefer repeated conversion or LTV. Given our retained, engaged users, how many are we converting to purchasers, or revenue-generation in whatever form that takes? And how much revenue do they generate?
Those three numbers are what really drives your business. So now you have something different to think of first thing in the morning...