The mobile app market has become extremely crowded. Organic app downloads are becoming increasingly difficult. Most independent developers usually don't have the time and resources to compete with the marketing efforts of larger companies. After putting a lot of work into developing an app, it can be disappointing to see downloads never increase.
Paid app purchases can help jumpstart your marketing campaign. mobile ad networks from Facebook and Google make it easy and affordable for everyone to try paid acquisition. Understanding LTV helps companies develop strategies to acquire new customers and retain existing ones, while maintaining profitability.
If a company can successfully predict a user's lifetime value, it provides marketers with a better basis for decision making - helping companies maximize the effectiveness of their ad spend. The term itself is also known as Customer Lifetime Value (CLV or CLTV) and Lifetime Customer Value (LCV).
What is LTV of an app user and why is it important?
User Lifetime Value (LTV) is the average value of a user or customer over the life of an app. It is an important metric that can take many forms. You can share the app on platforms where potential customers hang out or recommend your app to friends and family.
It could also be revenue from in-app advertising and purchases. For example, a customer is valuable if he does not spend money on the app but shares it with others who use it and spend money on it.
It is necessary to understand the LTV of end users. This helps you to successfully measure the return on investment (ROI) of your marketing campaigns. For marketers, it is not wise to focus only on new user acquisition. The cost of acquiring a new customer is 6x or even 7x the cost of retaining an existing customer.
In addition, the likelihood of selling to a new prospect is 5 to 20 percent compared to 60 to 70 percent for an existing customer. Therefore, marketers need to focus on developing strategies to retain customers and convince them to continue buying their goods or services.
To do this, they must pay attention to what users are doing in the app. They need to improve the user experience, which will lead to more revenue.
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How is LTV calculated?
If you want to calculate LTV, you have several formulas to choose from. Your choice depends on the resources you have. But just choose one and stick to it. We'll show you the simplest and most traditional one. To measure LTV, you need to include the following.
- Customer Lifetime
- Retention rate
- Customer Churn Rate
- Average profitability (per customer)
In addition, you need to distinguish between historical CLV and predictive CLV:
Historical customer lifetime value
Historical CLV calculates the lifetime value of a customer based on the amount of money the customer has spent with the business. There are two ways to calculate historical CLV: using ARPU and using cohort analysis.
This is the method for calculating annual historical CLV using ARPU: (total revenue / number of months in the customer lifetime to date) x 12. This is a relatively simple calculation.
Cohort analysis calculates the monthly ARPU for all customers who first enrolled in a given month. it is a visual representation of all changes in the customer's life cycle over the months/years of your business.
Historically, the CLV calculation has not taken into account customer behavior, changes and preferences.
Predictive customer lifetime value
The Predictive CLV model is more sophisticated than its historical counterpart. Predictive CLV estimates future customer lifetime and revenue by applying artificial intelligence and machine learning using historical customer behavior and predicted retention rates.
The model essentially takes into account customer trends and behaviors throughout the customer's lifetime.
Lifetime value calculation
Now that we know the key role of the LTV metric, let's look at how to calculate it. The basic formula for calculating CLV is:
LTV= Average revenue per user x 1/churn
LTV= Average revenue per user x average retention per user
Once you have calculated the lifetime value of a customer, you will understand the investment you have made and the average return on that investment. You can then adjust for any or all of the variables. You can classify customer data into different categories based on their "lifetime" values.
You can identify customers who are likely to churn early and take proactive action. You can extend special discount rates or offers in order to improve customer retention in specific segments. Another important benefit of customer segmentation is that you can use similarity modeling to acquire more similar and high-value customers.
How can you improve LTV?
1. Try user acquisition strategy
Combining user acquisition (UA) strategies with user retention is an effective way to increase LTV for current and potential app users. Don't forget to analyze and optimize your UA strategy through mobile advertising.
You can launch promotions through mobile apps to increase app downloads and maximize customer LTV. it also reduces the total cost of customer acquisition, thus maximizing your revenue. It is critical to research and test over time to understand where you need to spend your campaign budget.
2. Enhance UI and UX
The UI and UX of your app play a critical role in attracting and retaining users. If you can "wow" users, they will engage more and bring more friends.
In addition, a hard-to-understand UI is another reason for user churn. Make sure the UI is intuitive and aligned with the technical exposure of your target audience.
3. Design a better user onboarding process
It's a known fact that app user retention can increase by 50% with the help of memorable onboarding activities. From explaining how each feature works to showing why users should interact with your app, you need to do a lot to onboard.
Depending on the nature of your app, make sure to tailor the onboarding process and help users get started with your app quickly.
4. Provide deep links
Deep linking is the process of using URLs to link to specific pages or locations in your mobile app. It directs users to relevant content in a variety of ways, including notifications, SMS, email and social media. It also allows users to reach their goals faster.
For example, consider a user looking for a specific type of restaurant or hotel in a certain area. They will be directed through deep-linked ads within the app. The search will take the user directly to the desired result through the app, even if there is no installation.
Deep linking allows users to witness the effectiveness of the app before installing it. This greatly increases the likelihood that your app will be installed and can increase the lifetime value to the user.
5. Offer a referral program
Referral programs can help increase lifetime value in two ways.
First, rewarding referral programs will motivate users to spread the word about your app to as many users as possible, which will ultimately increase the user base. Second, offering rewards will increase user loyalty.
6. Use push notifications wisely
Push notifications can be very effective in engaging users. If you can get users to allow push notifications, you have a better chance of utilizing them. This will help you increase in-app interaction and engage with inactive users.
However, push notifications must be used smartly. While push notifications can enhance the user experience, being too intrusive with them can be counterproductive, i.e., discourage users from using the app.
We analyzed Urbanairship's recent study of more than 200 apps. It was revealed that 30% of Android users did not receive any push notifications within 90 days of opening the app for the first time. Of those, only 5% continued to use the app after the first open. This suggests that you are losing a lot of the money you spent on buying them.
It's also important to make sure your push notifications are personalized to increase engagement rates. Thoroughly research your metrics to determine which types of notifications are best for specific users.
Don't forget that the timing and size of the message is important. Keep messages short and try A/B testing to determine the best timing.
7. Use targeted marketing campaigns
Many of your users may have long forgotten to install your app, especially those iPhone users who opted out of notifications. To re-engage them and those who will soon be lost, run multiple campaigns to increase engagement and ultimately lifetime value.
8. Understand your users' needs and desires
Your users' needs and preferences are constantly evolving. Therefore, you need to always listen and consistently meet their needs. Knowing that their desires are being met will help take retention and loyalty to a whole new level. Always respond to app store reviews and make sure you have in-app feedback options.
Provide support for the channels where potential customers hang out. This includes social media platforms such as Facebook, YouTube and Twitter. In addition, integrating in-app support tools is an effective way to increase engagement and user retention.
9. Remember the power of social media
A great way to increase user engagement and add value to their lifetime is to make it accessible to them. You need to keep in touch with them on a variety of platforms and encourage them to provide feedback on your goods and services.
Social media is a great place to communicate with existing and potential customers and increase their confidence in your brand. Don't forget to use these channels with a real-time strategy, as your response time is important on social platforms. These platforms also provide multiple ways to promote your app and increase your customer base.
10. Launch a loyalty program
With your customer experience management program up and running, you already have some idea of which customers are likely to have the best CLV. You can use targeted marketing and special offers that recognize their loyalty to nurture relationships with these individuals or groups. This might include free expedited shipping, top benefits in a loyalty program, or access to exclusive or pre-release products and services.
A loyalty program incentivises rewards by offering discounts or offers for repeat business. It may use a membership card or or a point system that customers accrue at the time of purchase. While it is not a panacea for customer retention, if planned and executed properly, a loyalty program can yield great results.