What is A Mobile User Lifetime Value (LTV) & Why is it Important?


As the mobile app ecosystem continues to expand rapidly, it gets harder to acquire high quality users. Many users install an app only to never open it again, and often users uninstall an app after the first open. It’s key for app marketers to acquire high quality users to drive stronger return on investment (ROI) for long-term success. To get a better handle on this, it is important to know how to measure the success of your campaign through the user lifetime value (LTV) metric.

Who are High Quality Users?

High quality users are those that continually visit your app, who actively and frequently engage with the features, and who make in-app purchases. They are the users who bring in the revenue and drive up the ROI on your mobile app. With this, the success of every mobile app advertising campaign can be distilled down to a single number - the value that the acquired user will bring to the app over the course of their lifetime. The user lifetime value (LTV) metric measures this, as it is one of the most powerful, but also the most enigmatic, metrics in the app marketing toolbox.

The Essence of LTV

LTV is a way of calculating the value of a new user. This is how much that user is predicted to be worth to your app, over their whole relationship with your app. LTV can serve many purposes: it can be a measure of your app’s success, a reminder of the power of user loyalty, and a tool for forecasting growth. At its simplest, user LTV is what underpins (or what should underpin) your app marketing budget. It tells you how much each new user is worth – and thus provides you a cap for how much you should pay to acquire that user.

How to Calculate LTV?

LTV can be broken down into three categories of variables: 

  • Monetization - How much a user contributes to your app revenue (in the form of ad impressions, subscriptions, in-app transactions, etc.).
  • Retention - The level of engagement a user has with your app and how often they return to your app within a certain period. 
  • Virality - The sum value of additional audiences a user will refer to your app. 

Thus, LTV becomes a function of these three variables:

LTV = f (Monetization, Retention, Virality)

There are several different ways of breaking down this function. However, we will use the following model for calculating a user’s lifetime value:

LTV = ARPU x 1/Churn + (Referral Value)

Here, monetization is represented by ARPU (average revenue per user), and retention is represented by the churn rate (the number of users who cut ties with your app). However, the churn rate is inverted and is used as a proxy for the predicted retention value. Lastly, virality is represented by the sum of the new audience a user will bring to your app.

The virality element is left in parentheses as an optional part of the equation because few app marketers have the means of tracking this information.

For example, your average user generates $1.35 in revenue every month and you have a monthly churn rate of 60%. Your users are “promoting” your app in the form of ratings, reviews, and word-of-mouth, but without an accurate calculation, we will leave this referral value as 0.

Your formula now looks like this:

LTV = $1.35 x 1/.60 + 0 = $2.25

That means your average user has a predicted lifetime value of $2.25. It also means you should not be paying more than that amount to acquire a user.

So, why LTV is Important?

LTV can help you make the right decisions about your app marketing strategies. Continuing with the above example, if a user has an LTV of $2.25 and a user acquisition cost of $1.75, this means you should continue with the current advertising strategy. If the user acquisition cost of your app remains below $2.25, you are making profit on each new user and your ROI will be positive. The inverse is also true. If the user acquisition cost for a user exceeds the lifetime value, you should think about changing your app marketing strategy.

How Can You Acquire High LTV Users?

To acquire high quality users, app marketers should leverage both machine learning and creative optimization of the ad. Using insights from post-install engagement metrics such as retention, booking, and in-app purchases, app marketers can determine what kind of creatives should be developed and where the ad should be published.

Machine learning works best when paired with your creative optimization strategy. With custom models, your campaign’s ad creatives will be delivered to the most optimal targeted users at the most optimal time. But that is not enough. It is important for app marketers to design data-driven creatives and do continuous iterative testing. This helps to identify the best creative variants and media placement, combining past insights and real-time data to further optimize the programmatic campaign.

Creative Strategies to Win High LTV Users

  1. Be honest

    Honesty is crucial when it comes to advertising with user retention in mind. Showcase actual features of the app in your ads to establish credibility and trust among users, and to encourage them to keep using the app.

  2. Highlight best or unique features

    In a sea of homogenous and templated ads, it is best to cater to your app’s strong points. Showcase what sets it apart from its competitors, and which features your existing users will most likely utilize the most. Focus the creative on your app’s unique features to help make it stand out more, drive interest, and increase retention.

  3. Demonstrate how your apps work

    User experience is key to any app. Provide a walkthrough of your app’s features or showcase gameplay to make your ad creative more enticing. This gives your target users a snippet of what they can expect when using or playing your app.

  4. Design according to the target audience

    Ads do not have a “one size fits all” template. To motivate users to install and keep using your app, you need to use specific variants of creatives that target specific audiences. Personalizing creatives allows you to highlight features and benefits relevant to that specific user and helps you maintain your app’s relevance and cultivate user loyalty.

By unifying the optimization of both creative and media for active users who are most likely to spend money in the app, app marketers can see stronger ROI, especially in the long term.

To learn more about how Aarki can help you gain high quality users, shoot us a message here.

Topics: Industry News