Lifetime value (LTV) predicts the net profit attributed to the entire relationship with a customer. LTV is also known as CLV or CLTV (Customer Lifetime Value), and it is a key metric used to evaluate the profitability of acquiring and retaining users. In mobile app businesses, it is used to predict the net revenue a user will generate over the lifetime of their engagement with the app.
LTV is an important metric for mobile marketers because it helps them understand the true value of their users and make data-driven decisions about how to acquire and retain them.
One of the key advantages of LTV is that it allows marketers to predict the long-term profitability of acquiring a user. By understanding the revenue that a user will generate over the lifetime of their engagement with the app, marketers can make more informed decisions about how much to spend on user acquisition and which channels to focus on. This is particularly important for mobile app marketers, as the cost of acquiring users can be high, and it is crucial to ensure that the long-term revenue potential of a user justifies the acquisition cost.
LTV also allows marketers to identify and target high-value users. By segmenting users based on LTV, marketers can identify the users who generate the most revenue and create targeted marketing campaigns to acquire and retain them. Identifying high-value users is important when creating a target persona for the app and building a sustainable business model that can ensure a steady stream of revenue.
Furthermore, LTV also helps mobile marketers make data-driven decisions about how to optimize user engagement and retention. By understanding the factors that influence LTV, such as the average lifespan of a user or the revenue generated from in-app purchases, marketers can identify opportunities to increase user engagement and retention and thus increase the overall LTV of their user base.
There are several ways that mobile marketers can use to calculate LTV.
LTV = (ARPU x Average User Lifetime) – CAC
The formula above calculates the average revenue user will generate over the lifetime of their engagement with the app, minus the cost of acquiring that user.
The first part of the formula (ARPU (Average Revenue per User) x Average User Lifetime) calculates the total revenue generated by a user over their lifetime. ARPU is calculated by taking the total revenue generated by all users and dividing that by the number of users. The average user lifetime is the average amount of time a user is engaged with an app.
The second part of the formula, (CAC (Customer Acquisition Cost)), is the cost that took to acquire the user, which can include marketing and advertising expenses, sales commissions, and other expenses associated with acquiring a user.
LTV = ARPU x 1/Churn
This formula is created by a mobile advertising network, Tapdaq. Churn indicates the number of users who left the app, which means 1/Churn can equal the users' return rate.
Calculating LTV may be challenging. Below are some steps that marketers can take to increase the accuracy of their LTV calculation.