Is Your User Base Growing or Shrinking?
Suppose you are standing in front of your business dashboards. The numbers are going up and down in front of you. But are they telling the whole story? Is your business doing well or are you just getting lucky and riding a wave that's about to crash? The focus is not only on the number of customers who are engaging with your business but the type of customers and frequency of their visits. Without understanding the full picture, you could easily overlook the signs of declining user base and that is a risk that no business can afford.
Many businesses keep a close eye on their daily active users or customers (DAU/DAC), weekly active users or customers (WAU/WAC), or monthly active users or customers (MAU/MAC) . DAU/DAC measures how many unique users/customers engage with your product on a daily basis. They are useful for apps or services where daily engagement is critical (e.g., social media platforms). WAU/WAC, on the other hand, looks at the number of active users/customers over a week, which can be more useful for businesses like grocery stores or subscription services, where weekly visits are common. MAU and MAC offer a broader view. They show how many unique users or customers engage over a month. Thus they are particularly helpful for businesses with longer purchase cycles, like e-commerce platforms or SaaS companies. These metrics are like a heartbeat monitor. They show the ups and downs of your customer engagement. An upward trend is like a strong, healthy heartbeat. It means your user base is growing. A downward trend, on the other hand, is a warning sign that your user base is shrinking.
Which Metric to Choose
Should you pick DAU/DAC, WAU/WAC, or MAU/MAC? Let's take a look at how different businesses utilize these metrics to stay on top of their customer engagement. A small local grocery store might focus more on Weekly Active Customers (WAC), as most shoppers visit on a weekly basis for their regular grocery needs. Tracking WAC helps the store understand Customer Retention, assess seasonal demand, and ensure inventory meets customer preferences. Facebook, on the other hand, closely monitors Daily Active Users (DAU) to gauge how often users are interacting with its platform. Since their goal is to maximize daily engagement through personalized content, notifications, and interactions within the social network, a high DAU shows that users are consistently finding value in staying connected. A dip in DAU might signal that users are losing interest or spending less time on the platform, prompting Facebook to tweak its algorithms, introduce new features, or adjust content distribution to re-engage its user base.
The frequency of your pulse checks depends on your business's rhythm. If your business beats weekly, then your KPIs should be monitored every week just like the grocery store example.
Now, let's check your business's pulse. Your KPIs – gross merchandise value (GMV), active customers (AC), visitors, average order value, average spend per customer – are the vital signs of your business. You want to see these numbers climbing up.
Suppose you see a graph of 12 weeks' WAU in figure 1 from your business. Number of active users is going up. Does this mean your business is growing and doing well?
Not so fast. While an upward trend in active users is a positive sign, it's just one piece of the puzzle. What if you could see more than just the overall trend? What if you could see the different types of customers contributing to that trend as shown in figure 2? That's where Customer Segmentation comes in. It helps dive deeper into your complex customer base.
It looks like the business is growing, however, if you segment the active customers by new, current and resurrected, you can see the potential issues immediately. The orange bar in figure 2 represents current customers – those who purchased both this week and the previous week. The yellow bar represents resurrected customers – those who were inactive the previous week but made a purchase this week. The blue bar represents new customers – those who made their first purchase this week.
Your business is doing a good job getting new customers every week. Blue bars are getting taller. However, the orange bars are shrinking. It means that your business is struggling to keep the customers coming back.
I hope the charts make it clear – to get a full picture of your business's health, you need to consider and understand the composition of your customer base.
Why Segmentation Matters
Customer segmentation is one of the most effective techniques that can be used by companies to reveal patterns that they never thought existed. Segmentation is different from the concept of having one big customer base; instead, it divides the customers into groups that are more relevant and manageable with respect to their behavior, age, or their buying patterns. This provides a view that might be missed by the simple trend analysis. In the above example, you observed that your total customer numbers are increasing, but a deeper look at the various segments (e.g. new customers, current customers and resurrected customers) will show that the level of customer retention is decreasing among the repeat buyers.
Businesses are also able to determine which segment is the most profitable and which segment needs more attention through segmentation. For instance, you may discover that your top spenders who make large purchases constitutes a large percentage of your sales but is declining in size. You might not even know that this is an area that needs to be focused on if you do not have segmentation.
In addition, customer segmentation can be used to target customers more effectively for marketing campaigns. Unlike the mass marketing where the same message is sent to all the customers, you can now market to each segment in a unique way. This approach increases engagement and conversion at the same time. Ultimately, looking beyond aggregate trends and diving into customer segmentation is essential for making informed decisions, improving customer satisfaction, and driving sustainable growth.
Taking Action: Moving Beyond the Numbers
Understanding your customer metrics and segmenting your users are fundamental to getting a feel of the health of your business. It is only possible when you invest time to understand these segments better and convert data into insights to improve your growth and retention strategies.
Another thing to note is that something effective today may not be effective tomorrow. Keeping track of your KPIs and your audience segmentation will provide the much needed clarity for fast response and decision making that are essential for long term success of the business.
In the next article, I will explain how to segment customers and how to engage them properly: what tools are helpful in this process. Continue to follow for more tips to enhance your business strategies and keep your pulse strong.
Note: Unless otherwise noted, all images are by the author.