Retention is one of the crucial factors which affect User Acquisition (UA) performance directly.
While some app publishers are focussed on scaling UA, most of the acquired users are gone soon due to low retention rates. Retention and UA are not replacements of each other. They are complementary.
Life Time Value (LTV) is dependent upon the retention to a great extent. Opportunity to monetise better will be high when you have good retention rates. With low retention, the LTV also takes a hit.
LTV > CPI
While it’s a well-known fact that LTV has to be greater than UA Cost, many often ignore the fact that it’s the other way around too. You can’t scale UA if the LTV is too low. This is because CPIs go up with the scale and with time. If the LTV doesn’t support UA, it becomes tough to even sustain the existing UA levels in the long run.
What happens when an app has low retention rates?
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DAUs fall quickly as there are very few users left. Lower DAUs result in lower monetization.
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Entire funnel of late retention takes a hit as there will be a lower number of users, to begin with.
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We have to opt for an aggressive early monetization strategy. This will affect the retention further like a vicious circle.
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There will be a restriction on UA to acquire only early monetizing players to make the campaigns profitable.
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Payback period becomes shorter. Due to this, we can't bid higher to scale UA.
Let’s take a look at the below example:
Here are the Inorganic LTV values of App A & B over a period of time.
Assumptions:
Observations:
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App B has higher LTV until D60 but it doesn't have D90 retention. There is no scope to improve it's LTV post D60.
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App A continues monetizing after D60 and it's LTV doubles by D180 as compared to App B. It manages to monetise the late users better too.
Implications:
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CPI limit and Payback window are very low for App B as compared to App A. While we can acquire users better at the initial stages due to strong early monetisation, it becomes tough to scale the campaigns at a later stage.
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App A has enough headroom for CPI bidding and its payback period is high too. This facilitates profitable UA scaling in the long run with up to D180 ROAS goals.
Some points:
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Having just a good retention is not enough. In order to improve the LTV, the monetisation has to be strong.
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While many app publishers focus only on D1, the fact remains that both early and late retentions are important.
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It's also possbile to acquire high quality users with good retention numbers. But If the app itself doesn't have good retention factors, it becomse tough scale.