What Is Lifetime Value?
LTV crucially takes three components into account: virality, monetization, and retention.
- LTV is the total financial value of an individual user
- There is no industry-standard method to calculate LTV
- A high LTV is a indication of growth and a loyal user base
How Do You Determine LTV?
There isn’t only one way to calculate LTV. Depending on your business model and what data you have available, you may need to use different variables to calculate LTV.
Some formulas used 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:
Total Lifetime Revenue of an App ÷ Total Number of Users = Average User LTV
Why Is LTV Important?
Knowing your LTV can help you make informed decisions about how to spend your marketing and UA budget, what features to prioritize in future updates, and whether or not to offer a subscription model (for example).
Lifetime value is also incredibly helpful when forecasting revenue and performance as well as setting business goals. Besides that, measuring app lifetime value can help you identify your most valuable users.
In the mobile gaming world, this metric is especially important because it helps you pinpoint how much money you can afford to spend on user acquisition to remain profitable.
Here are some other specific areas where LTV can be applied.
- Estimate how much each user is worth to your app
- Determine if specific players are likely to churn or spend – and segment your users
- Optimize revenue streams, such as in-app purchases, in-app advertising, and subscriptions
- Set a maximum user acquisition cost to avoid profit loss
Which Factors Will Affect App Lifetime Value?
Now that we’ve covered the basics of how to calculate LTV, let’s look at some factors that will affect app lifetime value.
Customer Acquisition Cost (CAC) and Gaming Vertical
This is calculated by taking total ad costs and dividing it by how many new customers you acquired through those ads. In order for you to successfully grow your business, marketers should be aware of the cost of acquiring new users through their CAC in relation to how much those users generate over the course of their user lifespan. Your CAC should never surpass your LTV. If that is the case, you should reevalute how much you’re spending on ads.
Some gaming verticals naturally boast higher LTVs – and you should note that these apps also have to pay a much higher price to acquire their users. For example, MMORPGs (massively multiplayer online role-playing games) tend to have longer user lifespans than hypercasual games.
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. Therefore, building the right mix of revenue streams can 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 your app’s retention rates will likely lead to an uplift in your app’s revenue via ad consumption or IAPs. This will then lead to a higher LTV. Check out this list on how to increase your app’s LTV in a few actionable steps.
- Make the onboarding process easier for new users. Ensure you acquire your users and have the chance to engage them through a positive and uncomplicated in-app experience
- Have a progressive game difficulty. Make your game easy to learn and hard to master to drive gamers further and further into your game
- 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.
- Track and boost your retention metrics. Monitoring your engagement and churn rate, and reward your users for their loyalty, incentivizing them for returning to your app.
- 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.
You should note that LTV is strictly a forecasting metric. Meaning, it can change depending on user behavior and the other factors that determine your LTV.
That being said, lifetime value is still a crucial metric to track for any mobile app or game. Your goal is for your app to attract high-LTV users, which equates to higher retention rates and a more loyal user base. Which, in turn, equals higher ad revenue and more in-app purchases. The good news is, if you want to boost your app’s lifetime value, this can be done in a few steps.
App lifetime value is the metric you use to calculate the revenue you expect to generate from each person using your app throughout their lifespan as a user.
Lifetime value is the estimated total revenue a player will generate over the lifetime of playing your game.
You can usually use metrics such as ARPDAU, ARPU, and number of users to calculate a user’s LTV. We recommend using the formula:
Total lifetime revenue of an app Total number of users = Average user lifetime value
There is no fixed formula for predicting the lifetime value of an app user. Instead, it’s best to use benchmarks and insights from similar apps in your vertical, as well as user data such as past purchases or behaviors that can be tracked over time with analytics tools.