What is user retention?
User retention refers to the percentage of users who continue to use your product over a specified period, typically measured monthly, quarterly, and yearly.
What is the difference between customer retention and user retention?
Customer retention tracks whether paying clients, which are often entire companies, continue their subscriptions over time. It's a financial metric focused on revenue and long-term business relationships.
For example, an HR software vendor would measure how many enterprise clients renew their contracts each month, quarter, or year.
User retention, on the other hand, measures how many individuals within those companies actively use the product. It's a usage metric, not tied to revenue directly.
Using the same HR software example, user retention would reflect how many employees regularly log in or engage with the tool.
Strong user retention often supports customer retention, but they're not the same thing.
How to calculate user retention
Retention can be measured in multiple ways, depending on the type of product or service you offer. Here are some common ways companies calculate user retention:
N-Day retention
N-Day retention measures how many users return on specific days after their first interaction with the product. This process is well-suited for products where the goal is to encourage users to engage in regular, repeat behaviour, such as weekly exercise apps.
Unbound retention
Unbound retention measures the percentage of users who return to your product on a specific day or any day after that. This method is useful for products with less frequent usage patterns, like travel or movie booking services.
Period-N retention
Period-N retention tracks retention over defined time periods, such as 1-7 days, 8-14 days, 15-30 days, etc. It helps break down retention tracking into smaller time brackets, making it ideal for products that don't fit a strict daily or monthly usage pattern.
Retention lifecycle framework to improve user retention
To boost user retention, it's essential to have a structured approach that identifies where users are in their journey and applies tactics specific to that stage. Here's a breakdown of the retention lifecycle framework and how you can direct your retention efforts for each stage:
Define the critical events and ideal usage interval
In SaaS, not every action signals success. Tracking logins can be misleading if users log in but do nothing meaningful. So, you need to define the actions that indicate that a user is getting actual value.
For us at Mailmodo, meaningful engagement happens when users design an email or schedule a campaign, as these are clear signals they're experiencing the product's core value.
Once you have defined the critical event, define your ideal usage interval. For this, look at your power users. What's the typical frequency with which they perform this critical event?
That's your benchmark for understanding how often users should ideally engage with your product.
Segment users into lifecycle stages
Next, recognize that not all users are at the same point in their journey with your product. Some of them have just onboarded with you, others have been there for a while, while some others are on the verge of churning.
By segmenting users into different lifecycle stages, you can more exclusively address their unique needs and maximize long-term engagement. Let's take at these stages:
New users :
They have just entered your product ecosystem and are still getting familiar with how things work. Depending on how they joined, you'll want to guide them differently:
Free trial users: These users are testing the premium version on a short-term trial. Your focus should be on helping them reach their 'aha' moment before the trial ends.
Freemium users: These users are on a limited but free version of the product. By consistently delivering value and demonstrating the additional benefits they can get from the premium features, you can encourage them to upgrade and lock them in.
Newly acquired paid users: These users have recently purchased a plan, bypassing the trial phase. They need quick wins to reduce buyer's remorse and reinforce their purchase decision.
Current users:
These users have been around for a while and are consistently active. They need ongoing value delivery to stay engaged:
Recent upgrades: Just converted from free or trial plans to paid plans. They need continued support and guidance toward deeper product usage.
Freemium users: These are long-term users on the free plan. They may be loyal but haven't converted yet, so the goal is to guide them toward use cases that highlight the value of upgrading.
Active paid users: These users engage with core features regularly. They are prime candidates for upsell opportunities, advanced use cases, or referrals.
Inactive paid users: These users have paid for the product but show declining or no usage. They are at risk of churn, and the goal is to re-engage them with reminders or incentives before their renewal period.
Resurrected user:
These users were once active users of your product but became inactive for a period of time and have now returned to being active again.
They might have returned to evaluate whether the product has improved or if it's worth their time again. The goal is to address whatever caused them to stop using the product in the first place. Then, re-engage them by highlighting updates, new features, or improvements that solve those specific pain points.
💡 Related guide: What Is Customer Lifecycle? Stages, Channels & More
Implement retention tactics
Now that you've segmented users by their lifecycle stage, it's important to recognize that not every group is immediately ready for retention tactics. Retention efforts are most effective when targeted at users who have already demonstrated a level of commitment or intent - particularly paid users and resurrected users.
These users have either already invested in your product or are showing renewed interest, making them ideal candidates for strategies that reinforce value, reduce churn, and extend lifetime engagement.
For paid users
The focus shifts from convincing them to stay to helping them get more value over time. These users are already committed, so the goal is to deepen their engagement, prevent drop-off, and find moments to expand usage or upgrade when relevant.
Recent upgrades: These users are new to the paid version, so it's important to help them get started and see value quickly. Here's how you can do it:
Active paid users: These users engage regularly and are likely getting value. Retention here is about deepening product usage and uncovering expansion opportunities. Here's how you can do that:
Offer webinars, certifications, or best-practice guides to help users get more value out of your product.
Use pop-ups to recommend additional features or plans based on their usage patterns.
Inactive paid users: They've paid but aren't engaging much with your product. Your goal here is to reignite interest before they churn. Here's how you can do it:
Send personalized emails, offering discounts or feature highlights to incentivize users to become active again.
Use friendly push notifications like "We haven't seen you in a while, ready to jump back in?" to gently encourage users to log back in.
For resurrected users
The goal is to rebuild engagement by helping returning users see immediate, tangible value again. Here's how you can do it:
When they log in, greet them with a changelog-style walkthrough or a personalized update tour: "Here's what's improved since your last visit."
Use an in-app banner to resurface saved work or drafts. This creates continuity and reminds users what they cared about last time.
Measure your retention tactics
Start by measuring whether your tactics are working across user types. For instance, if you're running webinars for active paid users, don't just track attendance, look at whether attendees explore new features that have been discussed in the webinars.
For dormant or inactive users, if you're using push notifications to bring them back, look at how many re-open the app, how long they stay, and whether they complete meaningful actions within a day or two. These metrics will tell you if your nudges are helping or if you need to adjust the message, timing, or value proposition.
Review, learn and adjust
Establish a review cycle and asses key questions like:
Is my critical event still the best measure of value?
Has my user behaviour shifted (e.g., from biweekly to weekly usage)?
Are there new drop-off points that didn't exist before?
Additionally, track how users move across stages, say, from resurrected to active, or from active to power user. A simple dashboard can spotlight whether these transitions are smooth or if users are getting stuck at certain points.
Challenges in user retention and how to overcome them
Let's explore some common challenges you may face in user retention and how to overcome them effectively.
Early drop-off after acquisition
Many users abandon your SaaS product within the first few days. In fact, research from Pendo found that 61% of SaaS users churn within the first months. The key solution here is to guide users to the core value of your product or their aha moment immediately.
Skip lengthy introductions or complex walkthroughs and focus on getting them to their first meaningful action. Track early interactions to ensure users return to that action in the first few days. If they don't, prioritize fixing that before expanding your feature set.
Lack of product-market fit
A sudden drop in retention doesn't always mean your user interface or onboarding flow is broken. Sometimes, it simply means you're offering a solution to people who don't really need it. Or worse, your product is solving a problem that doesn't actually exist for your audience.
To address this, take a step back and re-examine the product–market fit. Start by identifying the real pain points your product addresses, then match them to a group of users who actively feel that pain.
Even a small, vocal group of retained users can give you direction here, like digging into their feedback, usage patterns, and motivations. Once you've validated the fit, realign your messaging, targeting, and product roadmap around that specific segment.
Failure to identify or track the right critical event
Tracking the right critical events is important. For instance, tracking retention based on logins is misleading. What truly matters is whether users experience and repeat meaningful actions that demonstrate the product's value.
Identify the actions that encapsulate the core values of your product; this is your critical event. For example, Trello critical events might be completing a task or moving a card to the "done" column. Measure retention by how many users come back to perform that key action again.
Mismatched usage interval
If you're tracking daily retention for a product that users typically engage with on a weekly or monthly basis, you're likely to misinterpret the data. Daily retention metrics can make it appear as though users are churning faster than they actually are, leading to false conclusions about product performance.
To avoid this, it's essential to determine the appropriate usage interval that aligns with your product's natural engagement cycle. For example, if your product is invoice software that users interact with once a month, focusing on monthly usage intervals will provide more accurate insights into user behaviour.
Final thoughts
It's easy to feel overwhelmed by the many factors contributing to the success of user retention. From onboarding, lifecycle stages to user feedback, the list goes on. But the good news is that you don't need to tackle everything at once.
Instead, start small. Identify the key retention metrics for your product, segment your users and segment users based on their lifecycle stage. With this foundational understanding, you can then easily apply retention tactics that bring effective, sustainable results.
If there's one thing to take away from this guide, it's that improving user retention is an ongoing, iterative process. It may take time to find the right tactics that work for your user base however slow and steady testing will lead better retention over time.
