What is LTV (Lifetime Value)?
Lifetime Value (LTV) is an estimate of the average revenue generated by a client throughout their relationship with the application. This 'value' of a client can influence many economic decisions for a business, including marketing budget, resources, profitability, and forecasts.
It is a critical indicator in subscription-based apps, especially in times of the modern and dynamic world.
Importance of Increasing LTV for Subscription Apps
An app's LTV is vital not only for its commercial plan but also for marketing. Your app's lifetime value serves as a baseline against which you can assess your marketing costs. If your ad spend per user surpasses the LTV, you'll lose money.
For example, suppose you're launching a campaign and your goal is to attract consumers to visit the app store and install the app. After a period, you may calculate your cost per install (CPI) by dividing the amount spent by the number of software installs.
In short, you cannot turn a profit if the amount you receive from a customer is less than the cost of recruiting them. Until your LTV exceeds the CPI, your marketing activities will undoubtedly cost you more money than they will make.
Understanding the Factors Impacting LTV
Since you need proper planning for LTV, understand the factors impacting it just before that.
- Customer Acquisition Cost (CAC)
Calculate it by using the formula below:
CAC = Total Cost of Sales & Marketing / Number of New Customers Acquired
An organization that has a high customer acquisition cost (CAC) will find it more difficult to obtain new business, as each new customer will decrease profitability. On the other hand, a low CAC indicates that a company is successfully acquiring new clients, lowering marketing and sales-related costs, and increasing profitability.
- Customer Retention Rate
This factor calculates the percentage of consumers who continue to make purchases after a certain period. A high retention rate indicates that customers are happy with the products and services, and it may signal that they may make larger purchases in the future.
Just to understand, take the example of an app onboarding 20 users. If its average customer retention rate is 85%, only 17 clients might stay for the next six months. This data is helpful for your subscription app model to know its customers and what makes them stay.
For subscription-based apps, calculating a customer's lifetime value (LTV) entails examining historical customer data to anticipate future revenue. This is the total revenue made by a user during a given time, usually a month or a year.
To forecast future LTV, take growth and retention rates into account. Investors use LTV to determine long-term revenue potential and business valuation.
- Churn Rate
Churn rate and LTV are inversely related. A falling LTV may be a sign of rising churn, which forces businesses to look into and fix underlying problems.
This is the proportion of your clientele that discontinues their memberships. The churn rate can be used to determine how much money was lost on those customers.
Strategies To Increase LTV of Your Subscription App
If you're experiencing a slow funnel, you should take proactive actions to increase your LTV. So, to help, we've collected a list of tried-and-true strategies for it.
1. Improve Customer Acquisition
The first step is to improve your customer acquisition. Now, how to do it? Here are a few tips for you.
- Targeted Marketing Campaigns
Many companies fail to provide valuable content. Rather than delivering valuable information, they limit themselves to automated campaigns that provide no real value.
Sending targeted and personalized campaigns allows you to focus on individual clients and engage them with material that is specifically tailored to them.
- Referral Programs
If we look at the big companies, we can see that Uber and Airbnb were founded through referral programs. Referral programs can help attract valued consumers while keeping costs down. They frequently produce pre-qualified leads, which in turn lead to high-value, long-term users.
- Offering Discounts or Promotions for New Users
Offering exclusive incentives to new users or subscribers is an excellent approach to making them feel special. Exclusive offers can be used as incentives to persuade people to buy from you repeatedly. Discounts, promotions, freebies, and eBook access are all feasible alternatives.
2. Enhance Customer Retention
Retention of existing consumers is critical since obtaining a new client costs 5x to 25x more than retaining an existing customer.
- Personalized User Experience
When you create a tailored experience, you can increase user engagement and future value, which will eventually increase the app's customer lifetime value.
One approach is to use data to attain this goal. When you collect and analyze data such as user demographics, preferences, and activity patterns, you may learn about what each user wants and needs.
You may then utilize this information to provide personalized recommendations, content, and notifications, making the app more relevant and valuable to the user.
- Regularly Updating and Improving App Features
Regularly updating your app's functionality is an effective approach to increasing Customer Lifetime Value (LTV). Fresh features keep people interested and returning for more, showcasing your commitment to their experience.
This increases loyalty and pleasure, resulting in more in-app purchases, repeat purchases, or subscriptions, all of which contribute directly to a greater LTV.
- Providing Excellent Customer Support
Make sure you provide prompt, efficient support over multiple channels, including email, phone, and in-app chat. Respond to user questions, concerns, or grievances in a timely and courteous manner to uplift clients and demonstrate that you value their business.
3. Increase ARPU
The ARPU—Average Revenue Per User—is considered an LTV metric that indicates how much money an average active user generates over a given time frame.
- Offer Premium Subscription Tiers with Additional Features
This is one of the best ways to increase ARPU for subscription apps. Work on segmentation and then identify useful features for each segment and create premium tiers to offer those features. Just make sure that additional features are in demand and also justify the price.
For example, you can offer extra storage space, prioritize customer support, or give some exclusive feature access.
- Cross-Selling and Upselling to Existing Users
This takes use of the fact that it is generally cheaper to sell to existing consumers than to gain new ones. Identify possibilities to promote related products or services (cross-selling) or upgrade their current plan (upselling).
Choose personalization, value proposition, or seize the chance at the opportune time, such as when the user is nearing the end of their plan.
- Implement Dynamic Pricing Strategies Based on User Behavior
This technique personalizes prices based on user activity data. For example, you may charge customers based on their storage capacity, the number of transactions they complete, or the number of services they use.
Reduce Churn Rate
A higher churn rate can be damaging. So, pay close attention to it and ensure you have strategies to reduce it at all costs.
- Analyze User Feedback and Make Necessary Improvements
User feedback identifies areas where your product or service falls short. By actively listening to feedback and making modifications based on it, you demonstrate to people that you care about their success.
- Engage with Users through in-app Notifications and Email Marketing
Continuous user involvement is essential for improving the lifetime value (LTV) of your app. Engaging your customers can range from sending them product-driven information via email, such as videos or newsletters, to developing a dynamic product experience (PX) with interactive components and in-app notifications.
- Implement a Re-engagement Strategy for Lapsed Users
Recent lapses may respond effectively to reminders of the app's worth, whereas long-term lapses may require special discounts or highlights of new features. Use email marketing or push notifications for these messages.
Consider offering limited-time discounts, free trials, or added features to re-engage lapsed users.
Measuring and Monitoring LTV
Now that you understand everything about LTV, you must also know how to calculate it. There are different formulas for each factor, but finally, you can rely on one.
LTV = Average Customer Value (ACV) x Customer Lifetime (CLTV)
- ACV: This is a customer's average revenue over a certain period. It is determined by dividing total revenue by the number of users.
- CLTV: Customer Lifetime is the average time a customer spends on an app. It can be estimated using past data or forecast models.
Implementing Tools for Tracking and Analyzing LTV Metrics
Are you not quite good at formula calculation? There is nothing to worry about. Other than the formula above, there are several tools to help you track and analyze LTV. You can use Apphud for it. It is a platform designed to help calculate and predict LTV.
It offers you tools like in-app purchases, customer insights, subscription analysis, and A/B testing. In short, it becomes a convenience for you when you need LTV value.
Marketing automation tools, CRM systems, and customer analytics software can all provide useful data. They can help you track customer behavior, purchase history, and attrition rates, classify clients based on their worth, and modify your strategies accordingly.
Setting Benchmarks and Goals for LTV Improvement
Once you've determined your current LTV, you should set benchmarks and goals for improvement. Setting measurable goals for LTV increases encourages data-driven decision-making.
By focusing on techniques that boost customer acquisition, retention, and average order value, you can gradually increase your entire client lifetime value.
Conclusion
With all the strategies in action, always remember that what is working today for customers might not be too tempting for them tomorrow. So, it is important to keep monitoring LTV for sustainable growth. Opt for A/b testing and also detect churn early to save yourself from getting obsolete before time.
In short, continuous optimization and monitoring are not one-time solutions. They're a continual process that keeps your offers relevant, competitive, and beneficial to your target audience.
Sign up for Apphud today and increase your app LTV by using advanced analytics!
