Mobile Customer Lifetime Value, Demystified

Does a low cost per install (CPI) mean you should pour all your marketing dollars into paid acquisition? Does a high average revenue per user (ARPU) mean your app’s sitting pretty in the black?

The answer to either question is an unequivocal no.

When evaluating the health of their mobile apps, many marketers automatically turn toward ARPU and CPI. But while it may be common practice, relying on these two metrics alone provides just one side of the picture. What’s missing is a holistic understanding of the customer.

This understanding boils down to a single metric, known in the retail world as Customer Lifetime Value (CLTV, or just LTV). Lifetime value is a simple yet powerful heuristic for assigning a dollar value to both the tangible and intangible value a customer contributes to the health of your mobile app over the duration of their time with your app (‘lifetime’).

In our new guide, we break down mobile customer lifetime value into its three parts and provide tips and best practices for calculating each component. In wrapping up, we bring everything back together in the form of one very meaningful metric to be used against the cost of customer acquisition (CAC) as a way to gauge the return on your marketing investment.

What is LTV and why does it matter?

Customer lifetime value can be broken down into three categories of variables:

1. Monetization—The monetary contribution each customer provides to your mobile revenue (in the form of ad impressions/clicks, user-generated content, subscriptions, in-app transactions, or whatever drives your business).

2. Retention—The level of engagement and loyalty a customer exhibits with your app, looking particularly at the length of the average customer lifecycle.

3. Virality—The sum monetary value of additional downloads a customer will refer to your app.

While there are several different ways of further breaking down these variables (and indeed, each business defines Monetization, Retention, and Virality differently), we’d recommend using the following model as a starting point for turning these variables into a concrete formula:

Of course, adding more variables to a formula doesn’t make it any simpler to comprehend, but rest assured we’ll deconstruct each component throughout the remainder of the guide.

Take the mystery out of LTV

Success in the app business often comes down to knowing your numbers—and a firm grasp of customer lifetime value is what will ultimately differentiate your app from the sea of 1.3M+ other apps competing for your customers and revenues.

Start calculating LTV the right way by downloading your free copy of our new guide now!