What Makes LTV The Most Critical Metric For App Developers

What makes LTV the most critical metric for app developers

App developers and marketers are constantly bending over backwards to make their app successful. A buffet of metrics is tracked on a daily, weekly and monthly basis, to gauge the performance of the app and sharpen the promotion strategies for the future. While a great deal of importance is laid on total number of downloads and overall app store ranking, a far more important and decisive metric that you should really be tracking is the User Lifetime Value or LTV.

So what is LTV and how can you use it to skyrocket your app’s growth. Read on to find out everything you need to know about LTV.

What is LTV?

User Lifetime Value or LTV is the total amount of revenue a user will generate throughout the time that user uses your app. So if a user used your app for a year, every in-app purchase made or premium feature bought by that user will collectively amount to that user’s LTV.

Why Is It So Significant?

The reason LTV is such a significant metric is because a regular or returning user spends much more than a new user. By adjusting your acquisition strategy and focusing strongly on long-term user retention, you can raise much more revenue than you would by concentrating all your marketing efforts on new user acquisition. Carefully tracking and analyzing your LTV will help you weigh out just where you stand in terms of user retention and sustainable monetization, thereby helping you design a much stronger user acquisition strategy that relies on attracting more of the right users as opposed to just more users.

How to Calculate LTV?

Calculating LTV is a slightly more nuanced process than calculating ARPU (Average Revenue per User) or ARPDAU (Average Revenue per Daily Active User). The three main factors that affect LTV are of course –

Monetization – How much real transaction of money are your users making on the app, be it in the form of in-app purchases, ad impressions or premium subscriptions.

Retention – How many users are still engaging with your app after a week, a month or a year of downloading your app as opposed to those who uninstalled it.

Virality – the number of new users an existing customer will bring to your app.

Each business has a different monetization model and every other value too is defined differently for each app. Therefore, there will be a different way to calculate the total LTV of each app.

So How Can LTV Help You?

Knowing you app’s LTV is allows you to get a good understanding of your app’s health. It lets you understand the amount of business each user is bringing you or the net value of each customer. This helps you in many ways –

1. Sharpen Your Customer Acquisition and Retention Strategy

Going after user acquisition and increasing the total number of downloads is an intrinsic trait of the app marketer’s psyche. We often forget however that everyone who downloads the app isn’t necessarily bringing the app any real revenue. Knowing the LTV of each user helps you identify the users who are actually good for your business. They are either bringing in revenue or newer users or both. In the end, these are the users you need.

Knowing the LTV lets you streamline your strategy to invest more in acquiring and retaining the ‘good’ users and letting go of the ones who aren’t helping. So instead of spending money on random user acquisition, you can target the right users, acquire, satisfy and retain them to boost loyalty in the long term.

2. Realigning Your Monetization Model

Assessing your LTV also lets you analyze your monetization strategy. Do you have a model where you can make users pay small but consistent sums of money over a period of time or is your strategy more of a churn and burn where users pay once upfront and no more? The latter strategy will require a continuous supply of new users, effectively sucking all your marketing dollars into new user acquisition. If instead, you employ a monetization strategy where existing users can continue to pay up small amounts over a period of time, you will see far more engagement, loyalty and of course, revenue.

So How Can You Increase Your Users’ LTV

That’s the big question, right? Well, the answer is simple. Once you’ve found your high performing users, make them happy. Those who are spending money on your app should get services that are their money’s worth. Those who aren’t spending money yet must be enticed into engaging more and probably spending in the future. Those who are less likely to pay at all, but are ardent users anyway, can be utilized to increase virality and spread the word of mouth, helping you attract more users. Here are a few key steps that will help you increase your users’ LTV.

1. Provide a great experience – Set the right expectations and then make sure you deliver. The users should get everything they expected from your app. Don’t overpromise and under-deliver. Make sure your paying users are made to feel cared for and special.

2. Nail the onboarding – FTUE or First Time User Experience is critical in shaping the way the customer feels about the app and whether he or she will keep the app. Make sure your onboarding process makes it very easy, smooth and inviting for a user.

3. Have a great referral policy – Even those users who don’t like to pay directly can help your app by recommending it to their friends and bringing you more users. Give such users the incentive to become your brand advocates.

Wrapping It Up

So as you can see, LTV is one of the most critical metrics you need to track and act upon to make sure your app generates a steady stream of revenue. By concentrating your efforts on acquiring, engaging and retaining the right users, you can increase your revenue and cut down on marketing costs on unproductive channels. What do you do to keep your LTV growing? Do share with us in the comments.

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Hiral Atha is the Founder and CEO of MoveoApps.