Mobile apps can't retain like SaaS products
According to a 2015 Pacific Crest Survey, the average monthly user retention rate reported for SaaS products is 99.3%. This means most SaaS products see an average of 0.66% user churn in 30 days, and 8% user churn annually.
Meanwhile, the average monthly retention rate across all Apple and Android mobile apps is about 5%. These apps have an average of 95% monthly user churn.
Even after just one day, most apps see about 75% of a user cohort churn.
Let's flesh out this comparison. Imagine a SaaS company has anARPUof $25/month. With average monthly churn of 0.66%, thelifetime valueof an average customer at this company is $416. If this company is profitable and maintains a LTV:CAC ratio of 3:1, the CAC is $137 at most.
If that SaaS company—that relies on recurring revenue—were to try to operate with 95% monthly churn, they would bottom out andlose all of their customers by the second month.
Now the lifetime value of these customers (with $25 ARPU) is $26. If those same customers still cost $137 to acquire, the LTV:CAC ratio is less than 1:5, a reversal of the normal ratio, meaning it costs 5X more to acquire a customer than that customer will be worth over the course of their lifetime. There is no way that this retention rate could support a SaaS company.
Yet the mobile app industry allows for these retention rates, with variation. Mobile apps, like SaaS products, have different retention rates within different verticals:
- Mobile gaming apps have the highest 1-day user retention rate.
- Music and transportation apps have the highest 30-day retention apps—approximately 12% and 8.6%, respectively
- Messaging apps have a 5.6 times better 12-month retention than any other type of app
These differences in retention between verticals shows thatretention is at least partially dependent on the nature of the product, because this affects how much value users see in the product and how much they want to engage with the product.
At the same time, the retention rates for even the stickiest of mobile apps—games and messaging systems—are still far lower than retention rates for SaaS products over the same periods of time. This points tofundamental differences between mobile apps and SaaS products that cause this disparity in retention, and ultimately perceived value and pricing.