When it comes to determining the health of your business, one key metric many organizations turn to is user engagement. At first glance, this metric might seem straightforward; however, it’s important to know exactly what you are measuring and some things to watch out for as you start to use user engagement as a key performance indicator (KPI) for your business.
What is user engagement?
User engagement is a measurement of how much your customer interacts with a product or service you offer. It’s a measurement of user behavior (frequency or depth of interaction) over time. So, why is this important? When customers engage with your product, website, service, or app, it shows they are finding it valuable and helps to confirm what you offer is helping customers meet a need they have. If user engagement is healthy, it’s a good indicator that your business has something to offer customers that they want or need. Good engagement will help build customer retention, which leads to increased referrals and revenue for your organization.
Over time, your business can learn a lot from user engagement KPIs, including the success of marketing campaigns and using these numbers to get to deeper business KPIs such as customer retention rates.
Three User Engagement Metrics: DAU, WAU, MAU
It’s very common for organizations to track daily active users (DAU), weekly active users (WAU), and monthly active users (MAU). These metrics measure the number of users who engage with your product or service over the specific time period indicated. Therefore, the DAU is the number of unique users who did some action each day, the WAU measures the unique users who completed an action each week and the MAU is the number of unique users who completed an action within a month.
It’s important to determine what action the user must take in your business to be defined as an “active” user because it’s not the same for every business. Is an active user one who logs on? Or is it someone who takes a more specific action with your product such as reading an article, submitting a query or comment, downloading a document, etc.
The DAU/MAU Ratio
One of the ways engagement metrics can give you a deeper look at the performance of your business is when you compare daily active users with monthly active users to determine the retention or “stickiness” of your customers. Knowing your retention rates helps to calculate the lifetime value of customers as well.
When you look at the DAU/MAU ratio, popularized by platforms such as Facebook, you see the number of monthly customers who interact with your product or service in a single-day window. The equation is:
The number of daily active users divided by the number of monthly active users = DAU/MAU percent
The reason this number is important is that revenue is generated by “a constant multiple of active users.” It’s the repeat customers who are dedicated to your product or service that will help propel growth. A number that’s over 20 percent is usually viewed as solid performance.
Mistakes When Measuring Engagement
User engagement metrics can be very helpful for organizations, but there are some caveats and some common mistakes that are made when businesses first measure engagement numbers. Here are a few to be mindful of:
1. Reporting total count: When you report the total count of active users, growth in that number usually indicates growth in the number of users rather than usage. This doesn’t give you the best insight on product health or growth and has been critiqued as merely a vanity metric.
2. Measuring everything or what other businesses measure: You don’t need to measure everything when it comes to engagement metrics. Be purposeful about what you’re tracking and why and direct your efforts there. Don’t rely on mimicking another company’s engagement tracking. Every company is unique, and what they track might not be what’s most insightful for your business to track.
3. Not allowing numbers to normalize: There can be a lot of attrition when you first launch—a new app, a new website, or a new business. For example, there is typically a 60 to 80 percent loss of new users within the first week of signup for website and web apps. There are a lot of business launch tactics, such as PR campaigns and special offers that could inflate engagement numbers initially. It’s important to let numbers normalize over a few months in order to get reliable data.
4. Products that aren’t used daily but have high-value interactions: More frequent use doesn’t always indicate the highest value, and therefore the DAU/MAU ratio might not work for your business. Consider the episodic nature of using products such as Airbnb. Most individuals don’t plan travel daily, but when they do, it’s at a higher price point. Differentiating factors unique to business and industries are the reason engagement metrics need to be customized to fit the unique needs of your business.
Engagement data can be very actionable for businesses and can help determine or prioritize new product development and investment as well as provide a view into what your target audience finds valuable.
For more KPIs, check out this KPI Library or browse my KPI web page.