Cheat Sheet #2: Key Metrics to Track for Consumer Apps and Networks
March 22, 2021
We promise, there’s more than just downloads and users…
Welcome back to our Cheat Sheet series! For #2, we’re covering key metrics for consumer networks and apps. In case you missed it, here’s Cheat Sheet #1 for key metrics to track for marketplaces!
Consumer platforms have huge potential to become all-powerful and encompassing. Before you and I even identify as a Founder or Investor or Student or Anyone Really, we are first and foremost Consumers — we are born Consumers and we Consume without even realising. Thus, the inherent potential for consumer platforms is unparalleled because they are made up of the most ubiquitous unit in the market — individual people. If you think about it, the largest platforms today are all consumer driven — Facebook, Amazon, Google.
So, as the Founder of a consumer platform, how do you unlock this power? Obviously, there’s the magic in the product and proposition but just as critically, you should establish early discipline to track the key drivers — or “North Stars” — of your platform so you can monitor its health. More so than any other type of business, Consumer platforms are extra adept for data-driven testing and decision-making all the way from acquisition to retention, because user data is abundant and feedback loops are short. We find that a key differentiator of winning consumer platforms is their ability to embed data-driven decisions everywhere. At your early stage now, staying close and listening to your data will be imperative to unlocking the power of your consumer platform.
But first, what do we mean by consumer platforms? At Samaipata, we include all models that generate network effects through many-to-many interactions between users. These can come in the form of social networks (e.g. Clubhouse), community platforms (e.g. Discord), mobile apps (e.g. Strava), multiplayer games (e.g. Fortnite)… and everything in between!
#CHEAT SHEET: Key Metrics for Consumer Apps and Networks
1. Acquisition — how much and what quality is your traffic?
Number of downloads (#)
Ironically, number of downloads (or registered users) is still the first metric on the list even though there is so much more that is better! That’s because it is the headline for total volume of traffic. Although it is often a ‘vanity’ metric, sometimes it can be useful at very early stages to gauge size. However, at later stages, number of active users (below) would be a better measure for the size of your network because it measures your effective user base.
% organic vs paid channels
This metric looks at the % of total traffic split between organic channels (e.g. direct to website) vs. paid channels (e.g. paid ads). It indicates your ability to leverage customer love to bring free traffic, a higher % of organic traffic indicates not just power of your brand but potentially also higher intention of the users.
% Conversion rate, by channel (CVR)
This metric looks at the % of traffic (e.g. downloads or website views) that convert into paying customers, which can be calculated per channel. It indicates the efficiency of each channel at converting traffic. Lower conversion rates may suggest a lack of clarity when messaging your value proposition or friction in the user experience.
Cost per acquisition, by channel (CPA, €)
Calculated as the marketing cost per channel divided by the number of new acquisitions through that channel in a given period. ‘Acquisitions’ does not necessarily refer to paying customers here but rather the pipeline stages leading up to it, such as user registrations, trials or leads. Instead, the cost to acquire a paying customer is reflected in CAC (below). Why do we distinguish this? CPA is usually channel specific and is intended to assess their efficiency at acquiring leads. CPAs are thus leading indicators for CAC and by themselves, are not a holistic cost of acquiring a customer. Using a freemium platform as an example — CPA would show the cost of acquiring all user sign-ups (including free users) for each channel, CAC would show the overall cost of acquiring customers i.e. those on the paid plan only.
Customer Acquisition Cost (CAC, €)
Calculated as the total sales and marketing cost divided by number of new customers in a given month. Typically, the cost includes the fully loaded salaries of your sales team, marketing expenses and customer service. CAC is distinguished from CPA because it measures the holistic cost of a paying customer, taken across all channels. It is a key metric that is also used to calculate unit economics later on e.g. to calculate payback periods and compare against customer lifetime value (LTV) — more on this below!
2. Engagement — how much do users interact on your platform?
Number of active users (#)
Number of active users is the size of your effective user base and also indicates the level of engagement, when compared with total users. This can be tracked at different frequencies i.e. Daily active users (DAUs), Weekly active users (WAUs) and Monthly active users (MAUs). The right frequency to track depends on the type of interaction on your platform e.g. instant messaging platforms may measure active users daily while travel booking platforms may measure weekly. How you define ‘active’ will also depend on your platform or type of engagement you want to measure e.g. logins for mobile apps, likes or comments for social networks.
DAU / MAU ratio (%)
While DAUs, WAUs and MAUs indicate the size of your active user base, they don’t show how active your user base is. DAU/MAU ratio addresses this by showing the % of your active user base who are intense users — i.e. it shows the stickiness of your user base. Depending on the nature of your platform, different standards for the DAU / MAU ratio apply e.g. instant messaging platforms should expect more than 80% ratio while this would be much lower for travel booking platforms.
Daily average number of sessions per DAU (#, daily, weekly or monthly)
By itself, average number of sessions (typically measured as opens or logins) is a high level metric for engagement because it shows how many users (not necessarily unique) interact with your platform on a typical day, week or month. However, it becomes even more useful when viewed on a per user basis to show the depth of engagement — i.e. daily average number of sessions divided by DAU shows how frequently each active user interacts with your platform on a given day.
An alternative is to look at daily average length of session per DAU, which may be more relevant depending on the nature of your platform. E.g. Daily frequency of sessions for instant messaging platforms vs daily length of sessions for yoga class platforms.
3. Retention — how much do users stay on your platform?
% of users who return by cohort
% of users who return is the proportion of users who come back to interact on your platform at a point in their lifetime (e.g. in their second month, sixth month, etc). This should be measured by cohort so that their behaviour can be isolated based on when they were acquired, e.g. users acquired in 2019 vs 2020 behave on different timelines. You can then calculate a weighted average across all cohorts to get a holistic view of retention on your platform. Cohorts are especially insightful for consumer platforms, especially mobile platforms, as user base can be further segmented to understand retention e.g. power users, paid users
To help out with this one, we’ve got a whole separate post on cohort analysis — including a handy template!
Churn rate (%)
Churn is the opposite of retention — it can also be viewed on a cohort basis by simply calculating 1 minus the % of users who return (above). However, instead of running a whole cohort analysis, churn rate is often expressed at a snapshot in time to show an overall % of users ‘lost’ from the platform. This simplified version is calculated as the % of total users who have not engaged at all in the last month.
4. Monetisation — how much are users willing to pay?
Average Revenue per User (ARPU, €)
Calculated as total revenue divided by total number of active users in a given period, this metric simply measures the average revenue each user generates on your platform. Revenue can come in many forms, such as orders, in-app purchases or paid subscriptions. This is important to calculate LTV below!
% Conversion from trial to purchase
Consumer platforms often offer a free trial or free version, so measuring the conversion rate from non-paying user to paying customer is a great way to show your customer love and their willingness to pay. This can be calculated in two ways — (1) for freemiums, it is % of users who convert from the free to paid version and (2) for free trial models, it is % of users who convert to paying at the end of the free trial. This metric is extra useful when testing different price points for your product — you can see which price point causes conversion rate to drop off a cliff and that’s how you know your ceiling!
5. Unit Economics — how healthy is your platform as a business?
Here we go — the holy grail of all metrics. Don’t worry, we know unit economics are hard to grasp because it is a function of all the metrics above. However, they are critical to understand and useful as a way to ‘temperature check’ your business.
Lifetime Value (LTV)
LTV measures how much value you can extract from each user over their lifetime on the platform: it is calculated as the total contribution margin I per user over a time period, say 24 or 36 months. It is calculated as ARPU per month x contribution margin 1 (%) x average # of months in lifetime. The trickiest part is knowing average lifetime — while the most accurate estimation is using cohort analysis (above) to find average time before churn, a quick proxy is to use 12 months. This conservatively assumes customers churn after a year.
CAC payback period (# months)
CAC payback period is the time required for a user to ‘pay back’ the cost to acquire them — the break even point — calculated as CAC divided by (ARPU per month x contribution margin 1). This is a quick way to gauge the dynamics of your platform and set limits on your CAC — how does the payback period compare to your average lifetime? If you’ve assumed 12 months, has CAC been paid back yet?
LTV/CAC measures the ROI per user on your platform and is critical to assess the health of your business — LTV should be greater than CAC by 3x as a rule of thumb. It takes time to achieve this, but we think it’s important for Founders to think about their platform in such terms so they can strive to improve it every day.
So that’s Cheat Sheet #2! we hope you feel better equipped to nail your consumer platform dashboard. Feel free to reach out to us — we’re always happy to answer any questions, no matter how big or small :) The next #cheatsheet in the series will be Key Metrics for B2B SaaS!
At Samaipata, we are always looking for ways to improve. Do not hesitate to send us your thoughts. We strive to partner with early-stage founders and to support them in taking their business to the next level. Check out more ways in which we can help here or for all our other content here
And as always, if you’re a European digital business founder looking for Seed funding, please send us your deck here or subscribe to our Quarterly updates here.
More insights to better the world through technology
Unlocking Business Expansion with This Strategic Framework
There comes a time within your business where you realise that your team needs additional skill set and expansion. Typically, product-market fit has been established and the opportunity to grow revenue and profit is there.
Scaling your customer service team: in-house or outsource?
As an early-stage startup, making the decision to manage your customer service team in-house or to outsource really depends on a variety of factors including where you are as a company in terms of your lifecycle, size and complexity, what your strategic customer service vision & goals are, and finally, what your financial resources and priorities are.
In a rapid-growth startup, demands can be high, budgets can be low, and processes can be lacking. There’s also strong competition for top talent in the startup environment and it can be challenging to keep talent as other companies also look to acquire people with specific skills, many of which can afford higher salaries.
Restructuring data teams that are ready to scale: 5 learnings from BlablaCar
In today's interconnected world, data has become a powerful driving force behind innovation and growth. Companies that harness the potential of data hold a competitive edge, and one such company at the forefront is BlaBlaCar. As a pioneer in the carpooling industry, BlaBlaCar has revolutionized the way people travel and the way it leverages data plays a critical role in its business strategy.
In this article, we delve into the fascinating world of BlaBlaCar's data team strategy, exploring how we restructured our teams in order to scale.
What role software can really play in helping us reach net zero goals?
While considerable venture capital investments have already flowed into the software sector, the intensifying climate crisis is pushing the need for radical action to the forefront. Software is currently receiving negative publicity as seen as involving too “shy” of an effort. On the other hand, hardware and infrastructure investments, which were traditionally overlooked by asset-light venture capitalists, are gaining momentum.