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Minute Monday #2: User Growth Accounting (with Google Sheets Template)
User growth accounting gives you insight into the trend of active users/teams with nuance that an xAU growth chart can never provide.
Growth accounting charts are more commonly seen in plotting changes in revenue composition over time, but have immense utility for product and growth teams in understanding the health of the product and its distribution.
User growth accounting will tell you
How many active users/teams in this period are new to the product
How many active users/teams in this period are retained from the previous period
How many active users/teams in this period have been resurrected after being dormant in the previous period
How many users/teams were active in the previous period and are not active (they've gone dormant) in this period - can be further segmented by their state in the previous period (new, retained, resurrected)
This is why this is so important:
xAU style active usage metrics are a function of the products ability to retain, AND the input of new users.
New users will mask poor retention without growth accounting.
To ensure your xAU and growth accounting metrics are meaningful, avoid activity defined as the lowest common denominator of logging in.
Define activity around the core value
Make sure the analysis period (x) is aligned with the problem frequency
Use a team-based (vs user-based) metric for B2B
Bonus: Here’s a Google Sheets template you can copy and use to better understand user growth accounting and apply it to your product.
The difference in active users between any consecutive periods is simply defined as:
Period-to-period active user growth = new users + resurrected users - dormant users
Quick Ratio is a period-to-period data point defined as the positive contributions to growth divided by the negative contributions to growth, so given the above equation:
Quick Ratio = (new users + resurrected users) / dormant users
When the quick ratio exceeds 1, the positive contributions to active user growth outweigh the impact of users going dormant (churning), so you have net positive user growth. And conversely, if below 1, the volume of users going dormant outweighs the positive contributions, and you have net negative user growth.
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