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

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February 16 · Issue #11 · View online
DataDiary by InnerTrends
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.
But… 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. They don’t offer you an accurate 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: 
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