When it comes to life-time value (LTV) there is much that marketers agree on. It is the cornerstone of marketing performance, and it should never be surpassed by cost-of-acquisition (CAC). Beyond those undeniable facts, there is still significant confusion and disagreement around its calculation and the best methods of enhancing it.
In this article, we will introduce the theory of lifetime value, tips for marketers, challenges concerning the combination of in-app advertising (IAA) and in-app purchase (IAP) monetization models, and how performance campaigns have the ability to supercharge LTV.
The importance of customer lifetime value, the expected revenue a user will generate from app install-date to abandonment-date, cannot be overstated. It reveals the power of customer loyalty, indicates overall app health, helps to forecast growth, and is an excellent comparative benchmark with which to compare your app to its competitors.
The degree to which app marketers understand LTV can make or break an app. Yet calculating LTV (or CLTV) is not straight-forward. There are multiple methods of calculation (including net, gross, and cohort measurements). Though at their core, these calculations are all equations measuring the relationship between virality, retention, and monetization. We believe that the most effective is Average Revenue Per User (ARPU) x (1 ÷ Churn Rate).
Whichever calculation you opt for, ensure that you treat LTV as a marketing metric, not an accounting metric. Determining your app’s LTV accurately is a vital step to improving it. That requires a precise understanding of factors such as timeframe, customer segmentation, and cannibalization.
Challenges and Solutions
Acquiring reliable understandings of each of these contributing factors has its own challenges. Take user-churn timeframes as an example. It can be difficult to determine a reliable line-in-the-sand for when an app user has been churned. Apps are rarely contractual; many users finish with an app without even uninstalling it, others uninstall then reinstall it.
In recent years, the situation has been complicated further by the proliferation of in-app advertising as an additional monetization model. For some apps, in-app advertising revenue can be the sole source of revenue whereas for others it only supplements in-app purchases. In-app ads are rarely from a single source, and they can be measured using a variety of metrics (CPI, CPA, CPM, etc.).
Results from these metrics can fluctuate. And to make matters worse, closed ad networks often will not share comprehensive data. App marketers using mediation platforms often have difficulty accessing complete data sets, and so must rely on estimates.
With only some of the data they need, app marketers are forced to fly partially blind in their UA and LTV strategies. Unified auctioning and RTB allow developers to make more accurate LTV predictions. Yet this is insufficient for business models involving both IAP and IAA because those ads are not interacted with in a vacuum.
To solve these problems, app marketers need to rely on in-app LTV prediction models as well as behaviour-based LTV models to factor in challenges such as cannibalization.
Using CPA Performance Campaigns to Boost LTV
As we can see, reliably boosting customers LTV is both complex and vital. App marketers need access to trustworthy data, a comprehensive overview of customer journeys, and an active solution that will allow them to both pinpoint and then boost the factors that will enhance their app’s LTV. A simple, trustworthy, and tested answer is available – using performance campaigns.
Lifetime Value is all about measuring users’ post-install steps. By analysing users’ historical data, marketers can find the tipping points in their journeys that distinguish high and low value customers. Launching comprehensive cost-per-action (CPA) campaigns provides app marketers with the ability to acquire users at these tipping points and a simplified metric for evaluating their efficacy. As long as the marketers ensure that cost-per-action does not surpass LTV, success is guaranteed.
Other Tips for Increasing Customer LTV
LTV is a combination of virality, monetization and retention. Enhancing LTV requires the improvement of at least one of those factors. Which of those factors you choose to focus on may well be dependent on your app and its current state of popularity.
- Tactical Push Notifications – There are few greater turn-offs in the app market than overzealous push notifications. And yet they can play a pivotal role in retention and re-engagement when applied with careful consideration. Constantly optimize your usage of them to make sure you get that Goldilocks ‘just right’ balance.
- Deep Linking – Using deep links is an especially useful way of increasing retention. If your app is achieving a high virality rate, yet you do not expect meaningful monetization until a later stage, using deep links is a great way to ensure user longevity.
- Reward Sharing – Great apps will facilitate organic sharing purely from their utility. However, it is always wise to give this an extra boost by encouraging and rewarding sharing through in-app rewards, discounts, and referral programs.
- Social Integration – When it comes to virality, social integration is a necessity. Do not only reward users for sharing your app, make it easy for them to do so.
- Optimize Onboarding – Creating a smooth, simple onboarding process is an often-overlooked aspect of improving retention. Impress users from the start and you will be less likely to fall foul of early stage funnel churn.
- Be Accessible – Users may well have specific issues with your app that cause them to stop using it. Many of these problems are solvable and thus the churn preventable. Having great communication and troubleshooting procedures is a great way to protect your retention rate.
- Smart Monetization – There is a great deal that can be said about monetization. Constantly optimize both IAP and IAA to ensure that you maximize revenue without putting users off.
If you’re an app marketer on the lookout for high-LTV users, contact us below to get started.