What is the “lifetime value” of an app and why is it important?

Any business owner will jump at the idea of retaining an extra 5% of customers to see a 95% increase in profits. Repeat business is a great strategy for growth in any industry and the app market isn’t any different. However, when it comes to apps, retention, which is often described by the term lifetime value (or LTV), can be more essential to the overall business strategy than in other industries.

What is Customer Lifetime Value?

Simply put, the Lifetime Value (LTV) of an app is a monetary contribution that the average user will generate during their lifespan. In the case of mobile apps, that’s the value a user will bring to an app from the moment they download it until the moment they no longer use it. With this in mind, app owners need to understand that the LTV of their product is a driving metric for their marketing strategy. If the LTV is low, it’s important to understand why and how it can be improved.

How can you find out what the Lifetime Value (LTV) of an app is?

There are different ways of calculating the LTV of an app. What is essential to understanding this metric, is that the lifetime value is made up of three main building blocks – monetisation, retention, and virality.

Monetisation is the overall spend a customer or user makes over their lifetime use of an app. For example, if an app only offers a subscription service, the lifetime spend of a user will be the number of months they’ve spent paying the subscription fee, multiplied by its price. However, apps offer a variety of ways to spend within them. In-app purchases, different add-ons, and features all influence this metric and make it variable on a case-by-case basis.

Retention is defined by how engaged users are with an app. Moreover, the length of their overall lifecycle within the app shows the length of their lifecycle. In other words, once a user downloads an app, this metric outlines how long their overall use of the app is and how that’s split over certain periods of time.

Virality, the most difficult metric to arrive at, is simply put the number of new users a current user will bring in. Widely known as ‘word of mouth’, virality is an elusive metric that cannot always be capture due to its interpersonal character.

In general, every business has its own way of calculating the lifetime value of their app but understanding these three key metrics will help you determine what the best way to move forward is.

The importance of Customer Lifetime Value (LTV)

Not only is the LTV of an app important for its business strategy, but it’s also essential to its marketing. The lifetime value of your app essentially works as a baseline to compare your marketing costs to. If your ad spend per user exceeds the LTV, then financially, you’re at a loss.

For example, let’s say you’re running a campaign to promote app installs – your goal is to drive people to the app store and get them to install the app. After a while, you can see what your cost per install (CPI) is, by dividing what you’ve spent by the number of app installs. If the individual CPI price is higher than the customer lifetime value, then you need to stop your campaign.

In essence, if you earn less from a customer than what you spend acquiring them, you can’t make a profit. Until your LTV is higher than the CPI, your marketing efforts will without a doubt end up costing you more than they will earn you.

Tactics to boost LTV

It’s important to realise that there is no magic button or easy solution to boosting your customer lifetime value. That said, working on your app’s useability is a good place to begin. We’ve compiled a few ideas that you can start thinking about:

Make it easy for people to use your app

We often forget that not everyone has the same knowledge or understanding of the world as we do. Maybe to you your app is straightforward to use, but for some, it might be overwhelming and difficult to navigate. With this in mind, look for ways to optimise the experience of your customers. Perhaps you can include a short introductory tutorial, or use design elements to highlight your user guide. This strategy will help you retain users and keep them engaged for longer, thus increasing your app’s LTV.

Be mindful of your app’s notifications

Push notifications are a great way to retain customers and a very useful tool in upselling your services to them. The more people you can get to opt-in to notifications from your app, the more opportunities you have for marketing to them at no extra cost to you. To optimise your push notifications strategy, it’s easy and appealing to users to opt-in to them. Equally important is that once users have opted in, you segment them and use that segmentation to personalise your strategy. An experience tailored to your customers’ interests is likely to boost engagement and keep them using your app for longer.

Make decisions with your users in mind

By all means, you should tailor your app to the needs of your customers. For instance, if you notice similar comments in the app store reviews, address them in a productive way. Think about how you can improve the user experience, add features, and update the way you offer your services. Don’t be afraid to change things just because they’ve worked in the past.

Make sure you’re reaching the right audience

Although an app’s lifetime value is a great tool for informing your marketing strategy and budget, it definitely shouldn’t be the only one. In the early stages of launching your product, you will need to invest in marketing, and you might not see an immediate return. It must be remembered that in this stage, your promotional efforts are more about brand awareness than they are about app installs, so make sure you’re reaching the right people. Set up social media accounts and connect with the community that will be using your app. The same goes for any paid advertising efforts – you need to make sure you’re targeting the right group of people and tailor your campaign to their interests.

Increase your app’s customer lifetime value with Novaflip

To begin with, you should determine what the customer lifetime value of your app is currently. As we mentioned before, this can be done in several ways. It’s up to you and your team to determine which one fits your app best.

Once you’ve completed the first step, we can help you improve your app based on the insights you’ve gathered. Our team can identify the gaps in your app, resolve them, and deliver your customers a better, more engaging experience.

You can use the form below to contact us. Tell us a bit about your product and we’ll be in touch with more information in no time at all!

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