Here at Mobile Marketing Headquarters, we often get asked, What exactly is customer lifetime value? If you’re not familiar with LTV, it’s essentially how much profit each customer will generate throughout their lifetime as your business’s customer. You can calculate LTV in several different ways. Next, we will talk about how you can use this information to increase your customer lifetime value.
What is Customer Lifetime Value (LTV)?
According to AppsFlyer, “Lifetime value is a KPI (key performance indicator) often used in determining how valuable a user is over the span of time in which they are using an app.” In simpler terms, customer Lifetime Value (LTV) is the value of a customer over their lifetime. It is an important metric for retention and acquisition because it allows you to target your acquisitions to maximize profitability.
What is LTV in Mobile Marketing?
Mobile consumer behavior analysis is crucial to an effective mobile marketing strategy. In mobile marketing, you can use LTV to determine the best customer segments to target in order to maximize ROI. The Lifetime Value of a Mobile Lead is the average revenue from a mobile visitor through the entire purchase cycle. It’s a useful metric to forecast customer value with a high degree of accuracy. If you want to learn more, check out this article in AppsFlyer that discusses What is LTV in mobile marketing in detail.
How Can LTV Be Used?
For marketers, calculating LTV is important for establishing how much to spend on each customer acquisition. It also helps you understand how long it will take before your customer pays for themselves, if ever.
To determine how valuable acquisition is to your business, use lifetime value to calculate that particular conversion rate multiplied by the total number of transactions. For example, if your marketing costs $100 per user but their lifetime value ends up being $300 because they make two purchases per year, you’ve made a good investment because it only took 12 months to pay off.
Tips for Increasing LTV
1. Nurture your customers after they have converted
2. Make it easy for users to quickly take the next step
3. Offer a free incentive (e.g., a white paper or eBook)
4. Have a clear CTA and encourage users to complete the action
5. Use exit intent pop-ups to get more conversions
6. A/B Test Features and Copy
Additionally, use lifetime value to track customers over time. This will help you pinpoint when customers tend to churn out or simply aren’t engaging with your product as expected.
Calculating LTV
There are two main methods for calculating LTV: cohort analysis and viral coefficient. Cohort analysis segments your customers into groups based on their first date of interaction with your brand, then estimates LTV over time using an average revenue per user (ARPU) model.
Other Methods for Calculating LTV
LTV = (ARPU x Churn) / Acquisition Cost
LTV: CLV = (1 / (1-Churn)) * ARPU * YOC
LTV = ARPU x Churn
Even brands such as Airbnb, Uber, and Amazon use calculating LTV (Life-Time Value) to increase revenue on products or offers. They also increase revenue through data science and consumer profiling.
Calculating LTV, however, is easier said than done. It’s an ever-changing metric that you should revisit regularly based on what you know about your customer base. Because it’s not enough to calculate one number, then move on—you need to incorporate that number into your overall marketing strategy moving forward.
