What number do you look at when you arrive at your desk in the morning? Or perhaps more accurately - as soon as you can focus on your smartphone and before you’ve even got out of bed.
I’d guess it’s probably a choice between three: Daily Active Users (DAU), new users and revenue. If you picked either new users or revenue, I will offer a partial congratulations (with some caveats that we will come to later on). If you chose DAU, I have some bad news for you: You’re concerning yourself with 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
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)
You Can’t Lodge DAU With The Bank
That’s why I’ve started thinking of DAU as the ultimate vanity metric. Sure, it feels good. When talking to your peers you can rattle off a suitably impressive number that makes you look good. The only problem arises when in conversation with your bank manager or investors. Because it transpires we can’t put DAU in the bank.
So there’s objection 1: There isn’t a particularly strong correlation between DAU and revenue. Or perhaps more accurately, there isn’t necessarily a particularly strong correlation. The numbers that really matter in terms of the success of an app business are your revenues. In whatever way you choose to monetize your user base, your success in doing that is what counts. Not simply having a user base in the first place.
Consider other industries and that conclusion should be obvious. I am sure that amazon.com and its peers in the ecommerce world take a look at daily web visitors. But I am equally sure it isn’t a number that rules their world. It’s probably mentioned by the marketing director to justify his or her spend on offline campaigns, and plugged into a calculation to determine how well or effectively visitors are converted to customers. But it certainly is not an end in itself. So why have we, in the app industry, decided it is? No idea…
A ‘Watcher’s Metric’
But wait - surely DAU is central to a successful app? Don’t we need a lot of users in order to generate a lot of revenue? Well, firstly - no, we don’t. Plenty of smart developers build niche games and apps that monetize strongly from small groups of users. In fact, all the evidence points to the vast majority of revenues coming from a small number of users - or ‘whales’ as they are sometimes called.
But let’s leave that aside for a moment and accept that a large number of DAU - a ‘hit’ in other words - 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)
ARPU or lifetime value per user
DAU, as we can see, is a product of new users and retention. So whilst we could simplify our math by claiming that ARPU and DAU are all that matters, this wouldn’t help us as a business. The reason being that DAU isn’t a metric that is ‘useful’ in terms of driving change. 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. In fact, it is a classic ‘watcher’s metric’. A product 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, to who would you give credit? In most cases there’s no simple answer to that question.
What You Should Care About
So if DAU is off the table, what should we be looking at? Well, the answer is above.
New users may not always correlate with revenue, and it is of course possible to deliver negative ROI in this area. But nevertheless, with no users, we cannot generate revenue. And there is a clear, easy to understand responsibility in this area.
Similarly, retention matters. Within this broad church I would allow measurement to take many forms - but the bottom line is understanding how much and how often your user base is playing. As already noted, DAU is a by-product of new users and retention.
And lastly - conversion, or if you prefer repeated conversion or LTV. Given our retained players, how many are we converting to purchasers or revenue-generating? 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...