LTV 101: The Complete Guide To the Most Important Metric for Your Mobile App
As an app developer, you aim to build a sustainable revenue model for your app. And on your way to building that model, some metrics are essential for earning income streams. The lifetime value of your app is the core metric for understanding how well your app is doing and one of the single most important concepts to grasp in mobile app marketing. Lifetime value (LTV) can help you measure your current and future marketing efforts.
In this post, we will break down what it is, how to calculate it, and how it can impact your mobile app business. This guide will take you through everything you need to know about LTV, so you can take full advantage of the insights it can provide.
What Is LTV In Mobile Marketing?
Customer lifetime value (CLV or often CLTV), lifetime customer value (LCV), or lifetime value (LTV) is a prediction of the net profit contributed to the whole future relationship with a customer.* By calculating and keeping an eye on the customer lifetime value, or LTV, you can optimize revenue streams of your app such as “in-app advertising”, “in-app purchases” and subscriptions. With LTV you will be able to calculate how much money you can afford to spend on your marketing operations to get more users.
In conclusion, Lifetime Value is a key metric that measures the profit from your customer over their lifetime or the revenue you can expect to receive from them.
Why Should I Calculate The LTV Of My App?
LTV can be an important indicator of how well your mobile app is faring. As you are growing your mobile app business and increasing the number of customers, it’s essential to know which of these customers will become the “best” ones so you can create the best experience for your most loyal audience who are willing to pay for your app.
By calculating an LTV you don’t only solve this problem but also strengthen your app’s marketing plan. You can manage your spending, minimize the risks, understand the different profiles of your users, and create more resources for the users who have a high lifetime value. In this sense, you can maintain your current users, and acquire new users with the most profitable strategy for your app by calculating the lifetime value.
How To Calculate LTV For Mobile Apps?
If your app is based on a monthly subscription model, you can calculate the LTV by finding out two metrics first: the average monthly amount you expect from each customer, and your churn rate, the rate that shows how many customers you lose each month.
For example, if your app charges $30 from users monthly, and your churn rate is 5%, the lifetime value of your new customer will be 30/0.05= $600. This means the lifetime of your customer is expected to be 20 months.
1- Basic Formula
Now that you’ve gained a general understanding of LTV, you can take a look at the basic formula to discover it a little further. This formula is good for starters and is used by SaaS companies often.
Image credits: Chartmogul
ARPA stands for “Average Revenue Per Account”, Gross Margin means the difference between revenue and Cost of Goods Sold, and Customer Churn Rate shows the users who’ve canceled their subscriptions.
2- Advanced Formula
Also, here’s one more example of LTV calculation. This is one of the advanced levels of calculations that can help you gain an understanding of the process.
LTV = sum(Retention Rates*) x Price x ( 1-Refund Rate) x (1-Apple’s Commission**)
Blended LTV= Average LTV of each country your packages are available
- The retention rates should be forecasted until there’s no user left in the related cohort. to live in the relevant cohort. You can use 12 months and 52 weeks of time. According to the package duration, you should handle the annual retention rates for monthly, monthly, 3-month, 6-month periods.
While several advanced level lifetime value calculations can be made for mobile apps, the outcome will change depending on your app and many other factors such as subscription plans, offerings, customer profiles of your app, etc. As a publishing company, Cherry calculates the Lifetime value of mobile apps with a pricing team of professionals. Reaching the most accurate number by creating a deep-dive analysis, Cherry handles each and every aspect of the value of a mobile app and creates the most profitable strategy according to the results.
How To Improve the LTV of your mobile app?
After you’ve calculated the lifetime value of your app, you can analyze the metric you’ve reached to understand where your app stands in many ways. You can discover your most profitable customers (age, gender, location, etc.), channels (organic search, social media, ads, etc.) as well as the lifecycle of your users, and improve each element in the most profitable way for your app.
This process requires a certain time and expertise, but you can work with Cherry to find out which parts of your app need to be upgraded and resolved, and our pricing team will calculate and create the best strategy based on the needs of your app.
By now, you have a better understanding of LTV for mobile apps. When considering how to use it, you’ll definitely want to run a few cost-benefit analyses and make sure you can justify the increased costs of acquiring users. These models are both incredibly complex, so there’s no one right way to apply them to your mobile app. However, by paying attention to the figures involved, and getting the help you need when it feels like a hard task, you can make sure that your app is sustainable over the long run.
Whether you’re creating an app for a business or a consumer, you should always take these metrics into consideration. They’ll be the determining factors in whether your app hits the market or not, so think carefully about what your LTV is going to be before you place any bets.