Lifetime Value (LTV) is the revenue that users contribute to your app from the moment they install it to the moment of uninstalling. LTV is generated income, typically occurring when users make an in-app purchase or subscribe to an app. Importance LTV determines how much revenue you can expect to generate during the time that a user actively engages with your app. LTV indicators shine a light on marketing spend. By examining the app-customer relationship, developers and managers can estimate revenue over time and use this to set marketing budgets.
High LTV users are much sought after so tracking this cohort and identifying the best channels and campaigns to acquire them can have a game changing impact on revenues. The app is doing well when LTV exceeds CPA (cost per acquisition) and CAC (customer acquisition cost).
Significance to Strategy Development
LTV can guide how much to spend on user acquisition campaigns while still generating revenue. Determining an app’s LTV helps developers and managers to establish its viability and sustainability. It also highlights an overspend or underspend in marketing campaigns and indicates where budget adjustments are needed.
There are a number ways to calculate LTV, all involve determining how long each user is expected to remain a user and how much revenue they will contribute over that time. This formula uses the average churn rate (how long they remain a user) and average spend of a user (ARPU) over a specific period of time.
The formula for calculating Lifetime value is:
Lifetime Value = ARPU / user churn rate
As churn is variable, you can multiply it by a discount factor to give a more conservative estimate e.g. a discount of 80%: (ARPU / churn rate) x 0.8 Just make sure you are consistent with your timescales and discount rate to ensure an accurate picture.
More Essential Mobile App Marketing KPIs:
Learn about the essential Key Performance Indicators to measure and improve your mobile app marketing acquisition, engagement, retention, conversion and campaign performance. Check out more KPI metrics to measure your app success:
- App Installs
- Average Order Value (AOV)
- Average Revenue Per User (ARPU)
- Cost Per Install, Cost Per Action and Customer
Acquisition Cost (CPI, CPA, CAC)
- Daily Active Users (DAUs) and Monthly Active
- Install per Mille (IPM)
- Install to Payer Conversion
- Purchase Frequency
- Return On Ad Spend (ROAS)