Amongst the many SaaS metrics and acronyms floating around in the startup world, you’ll eventually come across DAU and MAU.
Daily Active Users (DAU) and Monthly Active Users (MAU) can give you an overview of the health of your business and the effectiveness of your marketing strategies. They’re useful metrics, especially for SaaS companies, to keep an eye on.
In this article, we’ll take a look at the importance of monthly active users and daily active users, how to use the DAU/MAU ratio, and how to calculate each of these metrics for your SaaS startup.
Are DAU/MAU metrics important?
While some experts consider “active users” to be a vanity metric, DAU and MAU continue to be some of the most commonly used figures in measuring the performance of SaaS startups.
Defining an “active user” varies between products, industries and businesses, but in the majority of cases, it’s simply counted as a unique user logging into your app (without any deeper context).
For your specific SaaS product, simply tracking logins to your app may not be as useful as classifying an “active user” with more specific value based actions, such as:
Completing a task
Adding a team member
Sharing with friends
Creating a report
Playing an mp3
Frequent usage by lots of users is taken as a sign that your SaaS startup is healthy and has strong growth potential. But this doesn’t take into account how much value each person is getting from your app, or the level of engagement at each login.
In that respect, DAU and MAU don’t measure the overall levels of success that each person is experiencing with your product.
How to calculate daily active users (DAU)
Daily active users are calculated using the total number of unique users on a given day. These calculations take into account any new users who have downloaded the app, and any existing users who have logged in or taken an action within the app.
DAU is a popular metric, especially in the IPO technology sector, where daily user counts can cause shares to plummet or skyrocket on any given day.
For DAU to provide value for your SaaS startup, it should be looked at in combination with a wider range of measurements that give you insights into how engaged and how valuable users are finding your product.
Daily active users shouldn’t be relied on as a standalone metric
Relying on your daily active user count as a growth indicator can give you a wildly misleading picture of your SaaS business. Say, for example, your product gets media coverage that results in 500 new signups every day for a week. It’s cause for celebration when you look at your business growth from this perspective.
What the DAU doesn’t show you in cases like this is the percentage of those same users who sign up and forget about your product on day one, or the users who sign up but get no value from using it and eventually churn out. Unless you can sustain this level of new user sign-ups organically, your DAU metrics will eventually plummet again as they correct themselves against outside drivers such as PR, media coverage, and advertising campaigns.
How to calculate monthly active users (MAU)
“Monthly active users” refers to the number of people who have opened and engaged with your app in some way in the past month (30 days) leading up to your calculation date.
These users must be unique and each user is only counted once in every 30-day period – no matter how many times they have performed an action inside the app.
This metric gives an indication of your company’s performance over time in terms of being able to attract and retain subscribers. Other metrics can give you an inaccurate picture of your business growth, but MAU gives you clarity over whether you’re gaining or losing users over time.
Why monthly active users is such a useful metric
If you’re looking to get funding for your startup, whether it’s traditional equity (venture capital) or debt capital, among other alternative startup financing solutions, MAU is a key metric that needs to be established. This gives investors a picture of how many new and repeat users your SaaS has and is one of the indicators of a healthy growth trajectory.
New users and reactivations show an increase in MAU against the churn rate of existing subscribers, so if your monthly active users are increasing, it’s a good sign for investors that you’re doing things right in terms of managing your customer acquisition and retention.
Monthly active users is a metric governed by context
For very early stage SaaS startups, monthly active users is applicable but may not be as relevant as other key performance indicators. Due to startup marketing, PR, launch activities and hype – MAU can easily be taken out of context and misrepresented, showing highly inflated numbers that don’t accurately represent the actual growth of the company.
Active users might also log in and out without any depth of engagement or use of key features, furthering inaccuracies with this metric.
Even leading companies like Facebook and Twitter have problems with MAU as a representative measurement due to the nature of their business.
As an example, Facebook counts among its monthly active users the people who don’t log in to the actual Facebook app, but might use their Facebook login details to sign into third-party apps – thus wildly inflating their monthly active user numbers.
After Twitter lost 9 million users in a quarter, it has stopped giving up information on its MAU numbers and started using another metric (mDAU) that takes into account only its monetizable daily active users.
The DAU/MAU ratio
Once you decide on the definition of an “active user” for your specific product, you can divide your DAU numbers by your MAU numbers to get the user ratio percentage.
By looking at your SaaS metrics in this way, you can get a quick snapshot of you customer retention. If you’re a startup, this is a good metric to help evaluate your potential growth and revenue. DAU/MAU ratio is essentially a measure of “stickiness” or frequent engagement with your product by returning users.
If your DAU/MAU ratio percentage is 10%, for example, this means your customers return 3 out of every 30 days to engage with your app. Not so great.
A ratio of 50% is outstanding, and if your SaaS is like WhatsApp – with an impressive DAU/MAU ratio of 70% – you should probably stop and celebrate your achievement!
The average ratio for SaaS companies is between 10-20%. What’s “good” in terms of your percentage has a lot to do with your app medium, and whether your app is free or paid (among other variables). As there’s a wide variety of how active users are defined, comparison to other SaaS startups can be a misleading guide for your own company in terms of what makes a good percentage. Again, this is why context is so important when it comes to accuracy and finding real value in each of these active user metrics.
Overall, DAU and MAU continue to be an industry standard for measuring and forecasting SaaS growth and revenue. When combined with your other important metrics, they can provide a good snapshot of your acquisition, retention, and churn levels on a daily and month-to-month basis.