Ever wondered why lifetime value (LTV) is one of the most closely tracked metric for mobile apps? It’s because lifetime value is the key difference between apps that sell and apps that don’t. Companies that understand the value of their customers will always do a better job of retaining them.
In this blog, we’ll unpack how to calculate LTV, and how it can be a gamechanger for your mobile app business.
Understanding the lifetime value of your users
Lifetime value measures the amount of money that customers spend with a business over their lifetime before they churn. The hardest part of the sales funnel is acquiring a customer, but the good news is that a happy customer doesn’t just simply buy or interact once and then leave – they usually stick around! And with that, they may make more purchases too.
Lifetime value is what ought to drive your mobile app marketing strategy. It tells you how much each new customer is worth, which helps you figure out how much you ought to be paying to acquire that customer.
This metric can serve many functions: It’s an indicator of your success as a business, a reminder of the benefits of customer loyalty, and a handy tool for forecasting growth.
How to calculate LTV
LTV can be broken down into three distinct parts:
- Monetization: This is the amount that your customers contribute to your mobile revenue in the form of subscription fees, ad impressions, in-app transactions, or any other kind of billing. It is measured in the average revenue per user (ARPU), obtained by dividing total revenue by the total number of users.
- Retention: How often do your users engage with your app? How many repeat users do you have? Retention rate is the level of engagement a customer has with your app over the length of the average customer lifecycle. In calculating retention, you’ll need to measure how often users return to your app after the initial installation. This is the level of engagement a customer over the lifecycle, and is calculated using the inverse of churn rate.
- Virality: This happens through word of mouth, social media, and marketing efforts. These referrals can be brought in via social media, word-of-mouth, and so on. The additional value that each customer brings through referral of other users.
It is calculated using the formula:
LTV = ARPU x 1/churn rate
Once you’ve calculated the lifetime value of your users, you’ll better appreciate the investment you’re making to get each new user, along with understanding the cost of each user lost.
As a result of these calculations, you can then determine what actions you must take to improve your business:
- You may need to increase the cost of your service to maintain a healthy profit margin.
- You could invest in customer service to help users stick around instead of churning
- You may need to minimize your customer acquisition costs to help reduce your spends
- You might decide that you need to increase your spending on paid acquisition
How to increase customer LTV
Now that you know what LTV is and how it’s calculated, we will now figure out how to increase it. Unless you’re focused on growth, and you have the budget to burn more cash than you earn, your customer LTV should always be greater than your acquisition cost.
You can increase customer LTV using these strategies:
- Deep linking: If you tap on a notification to buy a particular product via a link, you’re taken to that exact page of the mobile app instead of the home page. This is an example of deep linking. Deep links are an essential part of building a seamless customer journey, plus it allows users to to access more content from your app.
- Use social media to boost virality: You need to regularly drive installs through content marketing, where social media can be used to boost brand awareness and recognition. Social media platforms are the easiest ways to connect with potential users, and build a strong community of people that will advocate for your app. Social media is not just for marketing your mobile app, it’s also essential for user acquisition tool.
- Upgrade your product regularly: This creates new opportunities for regular engagement with your users. To increase LTV, you need to keep your customers in my through ongoing user research, and find out what features they need.
- Use push notifications to make your app sticky: While nobody likes being bombarded with notifications, they can be a powerful tool to help retain users, drive specific actions, and improve your customer LTV. The more users you can get to opt for push notifications, the greater your ability to boost interactions on the app. Pro-tip: Segment your users to ensure that your notifications are personalized!