Monthly active users is a critically important KPI for subscription businesses - learn how to calculate it correctly.
Many people swear by monthly active users (MAU) as a metric to measure the health of your company. Others say it is just a vanity metric that is best ignored. Which of these is closer to the truth? Can any valuable data be gleaned from this KPI or should it be abandoned for more fine-grained metrics? In this post, we'll take a look at MAU as a metric and discuss the pros and cons of using it.
What are monthly active users (MAU)?
Monthly active users (MAU) are the number of unique users who engage with a product or a website within the last month. Companies usually track monthly active users by using a unique identifier such as a user ID, a username, or an email address. How a company defines an “active user” can vary. Because of this, monthly active users is often analyzed in relation to daily active users (DAU) to gain more meaningful insight into how customers are engaging with a product. Tracking monthly active users can be particularly useful to forecast customer churn and respond to potential issues proactively.
Pros and cons of using monthly active users as a KPI
As you could have probably guessed, the truth behind whether the metric is a very important one or a completely useless one, lies somewhere in the middle. There is some useful at-a-glance information that can be gleaned from your monthly active user count. The key is understanding exactly what the useful bits are and ignoring the rest. Let's take a look at what you can learn and when you shouldn't pay too much attention.
- Reflects user growth and business health: When people tell you how important measuring MAU is delete, this is what they will be talking about. If your number of monthly active users is going up every month, then your business is growing. If it is going down, then you are doing something wrong. Well, maybe. As we'll see later, this isn't always the case. Without a deeper dive into your metrics, you can't be exactly sure what is going on. In general though, MAU is great as an overall health indicator. Numbers going up is good, numbers going down is bad. You'll need to look deeper to fully understand why the numbers are moving and how good or bad it is, but MAU tells you that you need to look for something right at a glance.
- More Informative than overall users: Instead of monthly active users, some businesses will simply look at their total userbase as a KPI. This is even less effective. If you have thousands of users, but none of them ever use your product, then you are probably going to lose those customers at some point. In fact, with those numbers, there's likely a high churn rate and subsequent acquisition to make up for it, which makes for a longer payback period. With numbers that extreme, the problem will be obvious in other metrics, such as churn. In normal cases, not knowing how many of your users actually use the product leaves a lot of questions about how happy your customers are.
- Easy to calculate: Once you've decided how you want to define an active user, calculating the metric is very easy. Depending on your definition, you likely do not even need any special analytics tools in order to do so. This is the kind of thing that can very easily be built right into your existing login system or tracked with basic analytics services such as Google Analytics.
- No uniform definition of the metric: As we've already mentioned, different people will define an active user in different ways. If you decide that the average user logs into your site five times in a month and use that as your definition of an average user, but a competitor decides to count anyone who logs in at least once per month, then you have two competing definitions of the term. This makes it really hard to compare the metric across companies and means that when you see the metric mentioned, it is all but useless unless they also mention how they define it.
- May not reflect real user activity: When you use a basic metric to define your active user, you are not giving yourself very much information about whether or not the users are actually using anything. Someone that pops into your site, or opens the product for a couple of seconds for some quick errand and leaves, is much different than someone who actually uses the product for its intended purpose and is productive with it. For this reason, defining an active user by something meaningful, unsurprisingly, makes it a much more meaningful metric. In this case, your numbers will be smaller and less impressive to outsiders, but will give you a much better idea of who is actually using your product.
How MAU can detect future churn
We talked earlier how about how simply counting your number of users wasn't very useful and that if you have a lot of users that are not actually using the product, then you likely have a high churn rate. People who aren't happy with a product do not use it. People who do not use a product eventually decide to stop paying for it. By the time your overall users metric has dropped, they've already churned.
This is where monthly active users as a metric can become useful. If you notice a drop in your monthly active users or your daily active users, then it could indicate a problem with your service that is causing people to become unhappy with it. These people haven't churned yet, but unless it's normal seasonal ebb and flow of business, they are at risk of churning. By looking for drops in these two KPIs, particularly drops that are out of the ordinary, you can get a heads up that you may have an increase in churn rate. You'll then be able to look at other metrics and user surveys in more detail and attempt to rectify the problem before you lose customers.
How to calculate monthly active users
You've seen a brief overview of how MAU is calculated. Now let's take a closer look at the 2 steps involved.
Step 1: Define "active"
This step is important in determining just how useful your MAU measurement is. It can be something as simple as a user logging in. That may make sense for your product but likely will not give you a lot of information about whether the user actually used the product. A more useful definition would be a user that performs a specific action in your product. For example, if you have a product that converts image files from one format to another, an active user would be one that converts at least one image file. The less precise your definition of an active user is, the more fuzzy the data will be when MAU grows or shrinks.
Step 2: Measure the number of users that meet that definition over a given month
Once you've decided on a what an active user actually is, you need to measure how many of them log in within the period of a month. Here, it is important to remember that each user only counts once per month, as the goal is to measure only unique users. You can follow a similar method to get the number of daily or weekly active users as well.
MAU can be an important metric for getting a quick overview of how your company is doing. It becomes more meaningful when you define an active user in a way that indicates someone engaging with your product in a productive manner. However, because everyone is defining their active users differently, you should never use it to compare yourselves to competitors. The metric may be called by the same name, but ultimately will be comparing apples to oranges. Additionally, you shouldn't draw too many conclusions from the metric itself. View changes in it, particularly negative changes, as a sign that you need to look deeper into what is going on. Without that deeper look, MAU provides no actionable information.