Growth accounting was popularized by the growth team at Facebook. Alex Schultz, VP of Growth at Facebook, has a great lecture at Stanford called “How to Get Users and Grow”. Look it up on YouTube. He talks about the concept of growth accounting.
Basically, at Facebook they realized that they need to be looking at new users, current users, returning users and churned users, not just all the new users coming in. Let’s say you’re getting 10.000 users / week, but 9.900 of them will drop within the next 7 days. You’re not really gaining 10.000 users / week. In reality, you’re adding 100 users / week. Depending on your business model, this could be a sign that you haven’t reached product-market fit.
Growth accounting will help you figure out your net growth. Danny Ferrante at Facebook calculated their net growth this way:
A shocking number of startup founders and people publishing apps don’t know what’s their net growth, not just gross growth based on new incoming users each month. If you’re churning too many users and not resurrecting enough of them, you might have a problem with your product.
I used to set up a simple excel sheet where I would calculate growth accounting each week. Example:
|Week nr.||23||% growth||25||% growth||26||% growth|
This will help you understand the basic net growth of your app and takes 2min to do. A tool like Amplitude or Mixpanel will help do the calculation for you. And don’t worry, this is the most math you’ll have to do when doing growth marketing.
(I’m currently in the final stages of writing a book on app marketing. If you’d like a free copy when it comes out, click here)