What does it take to make your app successful? Although generating downloads is key, the most successful apps make sure that they have a high LTV, or lifetime value.
You might have heard of LTV here or there if you are familiar with mobile apps. For those who do not know, LTV stands for lifetime value. This lifetime value is the measure of a user’s value to your app over time. LTV is often measured in dollars and is also known as the calculated profit that a customer will provide for your company.
Too many companies overlook LTV. Instead they calculate profit in the most basic form (total revenue-total expenses = profit). However, LTV is an extremely valuable metric that helps you determine what you are doing right and what you are doing wrong. This metric helps you determine your app’s true success over time. It also helps you better manage your budget and informs you about your users and audience segments.
Although LTV is measured in dollars, this does not mean that a user has to make in-app purchases in order to have a high LTV. Even if a user does not spend any money in your app, they may still have lifetime value in other ways such as referring the app to friends.
LTV is also crucial because long-time users of an app are more valuable than new acquisitions. If you’re your revenue model is centered on new acquisitions and not loyal customers who continue to spend, then you could be in trouble. For example, if new acquisition slows down, your revenue bubble will eventually burst.
There are THREE main factors that determine LTV. These factors are monetization, virality, and retention.
Monetization: Determines how much money a user spends on the app (whether that be from ad impressions, buying the app, subscriptions, or in-app purchases).
Virality: the total amount of potential users your current users refer the app to (whether it be from word-of-mouth, social media, or in another way.
Retention: How much time users spend on your app and also how often users return to your app after the initial installation.
There is actually a basic formula to measure LTV: LTV= ARPU (1/Churn)
ARPU: average revenue per user – could come from cost of application, advertising, in-app purchase, and subscriptions.
Churn measures retention.
Churn = 1- Retention.
Retention = (# of users lost in a given period)/(# of users at the start of the period).
Hopefully now you understand the importance of LTV and also how to measure it. Lastly, we leave you with some valuable tips on how to increase LTV.
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