The Growth Equation
By the end of this lesson, you should be able to: write down the growth equation, explain what each part of it measures, use it to find out why daily users went up or down, and explain why retention usually decides how big a product can get.
One equation for growth
Here it is, for daily active users.
In plain words: today's users are yesterday's users, plus the people who arrived for the first time, plus the people who came back after being away, minus the people who stopped coming.
It's just bookkeeping, like a bank balance. Money in, money out. But it's powerful, because every change in daily users has to come through one of those three doors: new, resurrected or churned.
The same equation works for any window. Social Capital, a venture firm, popularized it for monthly active users to judge whether a startup's growth was healthy. You can use it for weekly users, paying subscribers, or even revenue.
The parts, one at a time
Each part is a different kind of problem with a different kind of fix.
New users
These are people using the product for the very first time. This is the part acquisition teams own: ads, search, referrals, app store placement.
It's the most visible part, and the easiest to buy. You can always get more new users by spending more. So a jump in new users is good news only if those people stick around, which is what the other parts tell you.
Retained users
These are yesterday's users who came back today. They don't appear as a separate term in the equation, because they're already inside "DAU yesterday" minus "churned". But they're the biggest group in almost every mature product, so small changes in how many of them stay add up fast.
Churned users
These are people who were active and then stopped. To count them, you need a rule for "stopped". For daily users, it's simple: active yesterday, not active today. For monthly users, it's active last month, not this month. We'll go deep on how to choose that rule in the churn lesson.
Resurrected users
These are people who used the product before, went away for a while, and came back. They're easy to forget, because nobody's dashboard is called "people who came back". But in a mature product, the pool of past users is often much bigger than the pool of people who've never tried it, so resurrection can be a big part of growth.