What Is Lifetime Value?

How Do You Calculate LTV?

There isn’t only one way to calculate LTV. Depending on an app’s business model and which data is available, you may need to use different variables to calculate LTV. 

Some formulas include the average revenue per user (ARPU) or average revenue per daily active user (ARPDAU), number of users, and average user lifespan. 

We recommend using this formula to calculate the average lifetime value of a user: Divide the total lifetime revenue of an app by the total number of users.

Why Is LTV Important?

Knowing an app’s LTV helps its teams collect insights into and carry out the following:

• spend its marketing and user acquisition budget while remaining profitable
• estimate how much each user is worth to an app
• determine whether specific players are likely to churn or spend – and segment these users or optimize your strategy based on this behavior
• optimize revenue streams, such as in-app purchases, in-app advertising, and subscriptions

The lifetime value metric is thus useful when forecasting an app’s revenue and performance as well as setting business goals. Besides that, measuring app lifetime value can help identify an app’s most valuable users and how to monetize them more effectively.

Which Factors Will Affect App Lifetime Value?

There are factors to consider when it comes to an app’s LTV metric. These include the following:

Customer Acquisition Cost (CAC)

This is calculated by taking total ad costs and dividing it by how many new customers were acquired through those ads. App marketing teams need to be aware of the cost of acquiring new users in relation to how much those users generate over the course of their user lifespan. CAC should never surpass the LTV metric of an app.

Gaming Vertical

Some gaming verticals – such as MMORPGs – naturally have higher LTVs than, for example, hypercasual games. You should note that such verticals with longer LTV metrics also have to pay a much higher price to acquire their users.

How Your Users Monetize

LTV can be affected by a user’s monetization preferences – for example, the LTV for users who make more in-app purchases (IAP) can vary from those who only consume ads. By better understanding a user’s behavior, you can provide them with an app experience with which they’ll likely generate the most revenue. Otherwise, you should optimize how you acquire those user groups. 

Your Monetization Strategy

Some apps are real champions of revenue diversity – or hybrid app monetization models. This means they combine various revenue streams to boost their app lifetime value. These streams could include in-app purchases, subscriptions, rewarded formats, or in-app advertising. Building the right mix of revenue streams can therefore help positively impact your users’ LTV or ensure that every user acquired is being monetized for maximum success.

How Can I Improve My LTV?

Boosting an app’s retention rate will likely lead to an uplift in the revenue it is able to generate. This will lead to a higher LTV metric. But how can app developers do this? 

1. Make the onboarding process easier for new users: Ensure users quickly become engaged through a positive and uncomplicated onboarding experience
2. Have a progressive game difficulty: Make your game easy to learn and hard to master to drive gamers further and further into your game
3. Segment users for personalization: You can segment your users, for example, into nonpaying and paying users. For users who are unlikely to make a purchase, you can show them more ads or more rewarded videos.
4. Track and boost your retention metrics: Monitor your engagement and churn rate, and reward your users for their loyalty, driving them to return to your app.
5. Create new, fun, and relevant content: Regularly update your app with new levels, challenges, designs, and rewards. This will drive users further into your app and increase their engagement.

Conclusion

You should note that LTV is strictly a forecasting metric – meaning, it can change depending on user behavior.

That being said, lifetime value is still a crucial metric to track for any mobile app or game. The goal is for an app to attract high-LTV users, which equates to higher retention rates and a more loyal user base. This, in turn, will lead to higher ad revenue and more in-app purchases.

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