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7 Reasons Why Customer Lifetime Value is Important

  • 26.03.2017
  • Apps

A very vital number you need to know about your business is the Lifetime Value of your Customer (LTV or CLTV). This is not different in the case of mobile application business either. LTV of app users is a critical metric in app analytics. This is crucial in evaluating the success and profitability of your app.

What is CLTV?

CLTV or simply LTV is nothing but the measure of average value of a user over their life-cycle with the app. To be more elaborate, LTV is the expected revenue that a user will spawn during their association with the app, i.e. from the initial install to the final user interaction. In simpler terms, LTV is the sum total of money a user has spent in your app over time. This ‘time’ starts from the moment the user downloads the app to their device till they remove it from their device. Shying away from this metric could fail you as an appreneur.

How Does CLTV Help App Makers?

Lifetime value (LTV) of an app user is an important metric to track the performance of your app. It acts as a decisive factor in your app marketing budget. The value of LTV offers insights into the worth of each app user,and how much you can spend to acquire that customer.In concise terms, the benefits of measuring CLTV can be stated as follows.

1. Tracks the performance and profitability of your app

LTV provides meaningful metric for evaluating the performance and profitability of your app. You can identify the amount of revenue or loss an app user contributes to your app business over his entire life cycle associated with the app. In a well-balanced business model, the Cost to Acquire a Customer (CAC) is significantly less than LTV. If your app enjoys users with decent LTVs, the health and long-term success of your app is guaranteed.

2. Helps in identifying high-value customers

Acquiring and retaining high-value users are really important if you are aiming to stay profitable. If 80% of the revenue is contributed by 20% of users, it absolutely means that 100% of your users are not profitable. Identifying these all-star or high-value customers, who will ultimately yield more revenue, is crucial for the success of your business. Prudent app entrepreneurs will focus on acquiring and retaining those users whose LTV is greater than cost per install (CPI). Calculating the LTV of users helps app developers to zero in on their best (or high value) users. The figure helps app developers to understand whether a new app user is worth more than the cost of acquiring them. If there is no financial gain in bringing in new customers, there is apparently no use in spending efforts and money to bring them.

3. Highlights ‘more equal’ treatment for some users

Don Peppers and Martha Rogers, who have launched the CRM revolution with their very first book, aptly remarked that “some customers are more equal than others.” The essence of this statement becomes remarkably meaningful if you are an app entrepreneur and are trying to increase profit. The marketing strategy needs to focus on the success of individual customer relationship. An app entrepreneur might be able to benefit more from profitable app users, and hence, identifying these ’more equal’ is crucial. These more equal users help your app business to stay profitable. Delivering higher levels of service to more money-spinning customers and keeping them loyal to you for longer time is a common-sense approach.

4. Helps in striking rational balance between acquisition and retention

It is an open secret that the cost of acquiring a new customer far exceeds the cost of retaining and growing existing customers. But there is an increasing tendency among marketers to lean more on acquiring new users, which is a rather difficult task. Though first-time, big-ticket sales shouldn’t be neglected altogether; it is rational to nurture your happy customers more. Customers who stay longer and contribute to your revenue in varied ways are far better than those who don’t make a single purchase (other than the initial (free) download).

5. Highlights the importance of incremental sales

CLTV is the calculated profit that a customer will provide your company during the entire period of association with your app. You should remember that the value is not limited to a single or couple of transactions or annual amount. Therefore, garnering incremental sales is decisive in keeping your app business in a gainful mode. Happy customers who stay longer with periodical purchases during their lifetime are valuable assets. CLTV educates appreneurs about the importance of retaining and winning back users who continue to spend. You need to convince current users to continue their purchases. You need to focus on matters beyond the initial downloads.

6. Helps in avoiding sudden revenue burst

Revenue from your app may be chiefly driven from new user acquisition. But if you overly focus on acquisition at the cost of retention, you might experience sudden revenue burst, once acquisition rate loses pace. Getting over excited on revenue bubble is indeed a debauched approach. If revenue shows steady rise with declining LTV, it signals some errors in the system. It might indicate that the users do not form a long-term commitment with your app, and do not ultimately convert. This will eventually lead to unpleasant bursting of the revenue bubble. Tracking both revenue and LTV of your app is important.

7.  Enables optimised advertising and marketing campaigns

CLTV helps app entrepreneurs to base their decisions on valuable metrics. They can identify the future demand for app, the most engaging features, etc. They can craft specific retention strategies to boost retention. Offers and promotions to reward loyal app users will help in this direction. If your user returns to your app frequently after the initial download, it is an indicator of your app’s success. In order to encourage users to return to your app, it is imperative to enhance user experience within the app. You need to focus on those areas where user is engaged for longer time and find out issues related to areas where user withdraw at a faster rate. You can even detect which acquisition and marketing channels work best and can divert resources accordingly. It conveys what’s going on with your users at every stage of the marketing funnel. The metrics reveals lead-to-customer conversion rate. This allows app entrepreneurs to avoid under spending or overspending in marketing acquisition costs. Optimal strategies for customer engagement can be formulated with the help of LTV.

Summing Up

Customer Lifetime Value offers a clear picture of the overall value of an individual app user from the moment he starts using your app till the moment he deletes it from the device. It an important tool that can never be overlooked as it signals the health status of your app.

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