LTV, or Lifetime Value, is the lifetime value of a customer. That is, the money that each user brought to the company from the moment the application was installed until it was deleted. We often hear What is LTV and how to the statement that each customer is valuable to the company, and LTV translates this value into specific numbers.
Knowing LTV indicators can help you solve several important business problems.
Understand how much to spend on advertising campaigns. What is LTV and how to
Without LTV metrics, it’s hard to know whether the costs of acquiring and retaining customers are paying off. Knowing how much money each customer brings you on average will help you plan your advertising budget.
For example: LTV of an Internet application user is 5000 rubles, and the costs are 1000 rubles. In this case, you can invest more money in an advertising campaign.
Predict how quickly your investment will pay off. LTV can help you understand when your marketing costs will pay off.
For example, a company spent 1,000 rubles to attract a client. If the average LTV of a customer in the application is 2,000 rubles, and he uses the application for two years, the investment will pay off in the first year.
Identify high- and low-value customers. Not all customers bring the same amount of profit to a company. The LTV indicator will help identify the most valuable customers for the company – those who make regular purchases over a long period of time.
For example, client A bought a product for 4,000 rubles, but did so only once a year. And client B makes purchases for 2,000 rubles, but monthly. The second client will be more profitable for the company. You can determine his characteristics and then set up advertising for a similar target audience.
Distribute resources between promotion channels What is LTV and how to
. Using the LTV metric, you can calculate and compare the indicators of different channels. This will help you understand where to invest more money.
For example, people who came after promotion through OEM advertising buy 2,000 rubles every month. And customers who installed the application from an ad on VKontakte make one purchase for 4,000 rubles, but then disappear and do not use it anymore. OEM advertising will be more profitable for the company: more valuable customers come through it.
Assess the importance of customer retention. LTV clearly shows how much money each customer can bring in and whether it is necessary to invest money to retain them.
For example, your company has an average customer LTV of 16,000 rubles. The customer made one purchase for 4,000 rubles and has not bought anything else yet. The company should try to retain him – for example, with the help of personalized content or an exclusive offer.
How to calculate LTV
There are several ways to calculate LTV for mobile analytics. The difference between them is in the accuracy of the result. The more data the formula takes into account, the more accurate it is, but also more complex.
1. Average for the period What is LTV and how to
LTV = App Revenue for the Period ÷ Total Users for the Period
For example, the application has 2,000 registered users and brought in 5 million rubles in a year.
Then the average for the year: LTV = 5,000,000 ÷ 2000 = 2500 rubles.
The advantage of this method is that it is very simple, and you can calculate LTV quickly.
There are quite a few downsides:
- The income from those users who have already become active and therefore are included in the denominator is not taken into account. However, they have not yet managed to generate income that would be included in the numerator.
- The calculation includes the values of the application metrics from the very beginning of its life. It does not take into account the fact that user activity at the beginning of the application is higher than at a later period.
- It is difficult to calculate LTV separately for each group.
2. Lifetime based on retention What is LTV and how to
This method requires additional data. You need to know how french polynesia business email list many days on average the customer uses the application, as well as how much money on average they bring in each day. Using this data, you can predict the user LTV using the formula below.
LTV = Lifetime × ARPU, where:
- Lifetime — the average lifetime of a user in the application;
- ARPU is the average amount that a user brings in over a certain period of time.
For example, you need to calculate the LTV indicator for a another advantage is that you can check service with a monthly subscription. On average, customers buy it for six months at once. The price of a one-month subscription is 3,000 rubles.
Then LTV = 3000 × 6 = 18,000 rubles.
Pros:
- Relative simplicity of calculations.
- You can calculate LTV every day.
- You can calculate LTV for each group separately.
The main disadvantage: the LTV calculation will not be entirely accurate, since the formula uses average indicators.
3. Prognostic formula
To calculate LTV this way, you will also need additional data. europe email You need to know the average user check amount, their lifetime in the application, and the customer’s repeat purchase rate. This formula is suitable for predicting the development of the application over a short period.
