User Lifetime Value (LTV) is like its name shows, the average value of a user over his lifecycle with the app. Simpler saying this; LTV is the measure of user’s value over time. LTV is one of the most important metrics to track. The value provided by LTV has multiple forms. It can be sharing the app on social media, spreading the word about the app or the revenue for ads and in – app purchases. For example, even if a user doesn’t spend money using your app, but he shares your app to other users that do spend money with it, it means that he is valuable.
For a marketer it’s not enough to increase revenue through new user acquisition. He has to concentrate on creating strategies to gain user retention, to convince current users to continue their purchases. That’s where Lifetime Value is very useful. It’s a great way to optimize marketing campaigns in order to attract high value users. For this, you have to pay attention to the actions that users are making inside the app and to increase the user experience in those specific areas. This will result in more revenue.
How To Calculate LTV
LTV is not calculated on the entire user base, but on different segments and cohorts to provide the possibility to analyze different patterns and characteristics. Although many developers consider that tracking LTV is very important, very few of them actually measure this metric. It is easier for them to calculate just the Average Revenue Per User (ARPU) which is measured on the entire user base not on different categories of users. Calculating LTV is more useful for marketers and developers.
Here are some main factors that influence LTV. Any increase of these factors will lead to positive results over the LTV, but according to Apptamin the first 3 are the most important:
RETENTION. It means how often users return to your app after the initial installation. Marketers believe this is the most important metric for calculating LTV because as often a user returns to your app, as many value can bring to your app.
MONETIZATION. This is of course, how much money a user spends on the app. That means an increase of spends will positively affect LTV.
VIRALITY. This is the number of users brought in by each user via social media, word of mouth etc. It is almost as important as the monetization.
AVERAGE REVENUE PER USER (ARPU). This is only about revenue as its name states. That can be calculated by dividing total revenue by total downloads.
AVERAGE REVENUE PER DAILY ACTIVE USERS (ARPDAU). Is ARPU calculated daily dividing Daily Revenue by Daily Active Users.
There are some methods to calculate LTV depending on the category of the app and the metrics available for that app, according to Smart App Marketer:
Average LTV. This method can be used when you have a huge user base that spends a lot of money on your app.
The algorithm to calculate it is:
Avg. Daily Revenue = Last 30 Days Revenue / 30
Avg. DAU = SUM (Daily Active Users) for last 30 days/30
ARPDAU = Avg. Daily Revenue / Avg. DAU
LTV = ARPDAU x average user retention.
Tapdaq’s Approach uses an additional metric: CHURN which is the percentage of users that stop using the app over a period of time:
Retention = (Number Of Users Who Use App In A Time Period) / (Number Of Users Who Use App In a Previous Period Of Time)
CHURN = 1 – Retention
LTV = ARPU X (1/ CHURN).
“Weekly Cohort” includes only verified In – App Purchase Revenue and segments of users based on the week of the year.
LTV = Total Verified IAP Revenue / Number of users in this segment
Method that uses Virality Coefficient. If an app has the coefficient of Virality K = 1 it means that every user of the app brings 1 user into the app.
LTV = (1+ K) X ARPU.
A great resource to understand these metrics is an interesting article from Appboy.
5 Tactics For Maximizing LTV Of An App User
In order to measure the return on investment of a marketing campaign, mobile advertisers have to maximize the lifetime value of the app users. Some of the methods to do that are as follows.
1. Use Deep Linking
Deep Linking is seen like a shortcut between user awareness and the stage where he makes a purchase and becomes a customer. It helps you to remind yourself via different channels to increase engagement.
An interesting result in this area is made by Medium on Hotel Tonight app. When the user types in “Hotel in Seattle” he is directed through a deep linked ad to the list of hotels in Seattle within the app. It converts into a 99% increase in revenue.
2. Optimize Your Onboarding Process
You have to spend time and effort for optimizing and personalizing the onboarding experience. Developers must impress users in order to gain retention. You can test different onboarding flows to discover what suits best for your app. A piece of advice from Apptamin is to offer your user only what he needs, never overwhelm him with useless information, giving an example from Lyft app where users can get a lift quickly and simple.
3. Use Smart Push Notifications
Push Notifications can be a good way to engage your users. If you use them wisely you can increase user experience. Don’t make the huge mistake to be too intrusive. Don’t annoy your users. Segment your users and make your push notifications personalized in order to maximize the engagement. Don’t forget that timing is everything and number of words (128-character limit is ideal.) that you used counts. Lastly, do A/B testing to benchmark between the alternatives to pick the best(s).
4. Optimize Your UA Strategy with Mobile Advertising
Don’t forget that your User Acquisition strategy has a relation with your LTV. You need to analyze and optimize it in order to maximize your Lifetime Value. If you have a newly app and want to both increase your downloads and maximize LTV of your users, you can prefer boost campaigns. It also helps you to decrease the UA costs and this helps you to increase your LTV accordingly. Before spending the entire UA budget, consider running some tests for at least 3 weeks to see where you should concentrate your campaign better.
5. Be Accessible When Your User Needs
Tracking LTV of an app user is an ongoing process. You have to stay in touch with your users, be aware of their needs and their desires and try to make the best possible app to serve their purposes.
Use social networks to communicate with your users and to grow their confidence in your brand. These channels are great for sharing your app, too. If they are satisfied they will spread the word about your app and they will become valuable users. Don’t forget that your response time matters on social platforms. Use the channels with real-time strategy to avoid dissatisfaction.
Create an in-app support funnel to let your users reach you whenever they want. Follow the reviews to find the problems with your app and answer the questions. All of these will also help you to update your app when needed.
Both, mobile marketers and app developers have to pay attention more to how to keep the current users and engage them to spend inside the app than to concentrate that much on user acquisition campaigns. For that they should consider deep linking, optimizing the onboarding process and user acquisition strategy, be there for their users and send them push notifications wisely. These are steps they have to make in order to lead their app to the next level.