5 ways to increase LTV for mobile app user acquisition
If you want your app to grow without wasting your marketing budget, you need to calculate the customer Lifetime Value (LTV). The tricky thing here is to make sure you measure it the right way.
Let’s first define LTV and check for calculation errors that might be holding you back from your competitors. Once that is clear, we’ll explore ways to boost your LTV.
What is LTV?
You need users who don’t bring you money just today but tomorrow, too. LTV, or Lifetime Value, is the amount of money an average user will spend in your app over the entire time they are your customer, which could be a one-time purchase or repeat purchases over years.
Why should you calculate LTV?
To save money
The money you make can come from both new customers and your loyal regulars. LTV helps you figure out which group brought in the money this month and how to handle your finances to save money down the road.
To monetize better
LTV will help you understand how your monetization experiments go, from sending referral emails to adding new products or changing prices. If you know how much money your referred users will bring you, you know if your monetization strategy is worth the return on investment.
To get investment for your app
Investors like a strong LTV because it shows a healthy app with growth potential. Having a solid LTV can attract investors and secure funding for your app.
Three common mistakes when calculating LTV
1. You used revenue to count LTV
Calculating LTV based on revenue instead of gross profit can be tricky because it doesn’t give you the full picture. When you focus on revenue, you’re not considering all the costs of acquiring and retaining customers, which can mislead your results and decisions.
Let’s say you have a subscription-based app where users pay a monthly fee. If you calculate LTV based on revenue, you’ll overlook the costs of customer support, marketing, and other activities. This can make your LTV look higher than it actually is, leading you to invest more in acquiring customers than you actually need to.
We suggest using gross profit instead of revenue. Here’s our formula for Gross Profit:
Gross Profit = Revenue — Variable expenses
Variable expenses are expenses that grow proportionally with sales. They can include server hosting costs, payment processing fees, and customer support costs. For example, if more people use the app, it might need to use more server resources, which would raise hosting costs.
2. You only have one figure for LTV
It’s not a great idea to lump all customers together when looking at their LTV. It’s better to segment them into groups based on things like demographics, how they found you, and others.
For instance, you may find that concentrating on organic customers makes more sense because they’re more profitable for your business.
3. You don’t use it to predict the future
If you can’t predict your LTV, you can’t plan your marketing budget.
Think about a gaming app where users stick around for six months and bring in $5 every month. When the marketing team is figuring out how much to spend on getting new users in the next few months, they can use the LTV prediction to ensure they’re spending only a little money on each user.
If it costs $10 to get a new user, and that user is expected to bring in $30 over their time with the app, the campaign will make money. But if it costs $25 to get a new user and they’re only expected to bring in $30, you might need to rethink your approach.
How to calculate LTV
We suggest using a cohort analysis to count your app’s Lifetime Value.
A cohort is a number of people who did something at the same time in your app.
Here’s how you can do it:
- Log in to your app analytics solution and set your cohort of users.
- See your cumulative gross profit.
- Divide cumulative gross profit by the number of users in the cohort.
LTV Prediction
The marketing team can’t wait a year to see if their ad campaigns break even. They must decide before they have a full year of data. That’s why it’s crucial to predict the Lifetime Value of new users based on just a few days of data.
With modern app analytics tools, you can predict your LTV within minutes. If you followed our guide to predicting LTV, you’d quickly see your predicted LTV for every channel you have:
Knowing your predicted LTV lets you easily see which marketing campaigns you should invest more money in.
5 ways to increase LTV
Learn how you can increase LTV along with app industry examples.
1. Tailor your push notifications
Write personalized notifications your users care about. Imagine if you got a push notification like this:
Image from Taptylics
What would you feel? Would you click on it? Probably not — there is no clear CTA, the user likely won’t understand your exact offer. Instead, craft a push notification that touches on your audience’s pain points and your product’s value proposition.
2. Reward sharing
According to this research, referred customers have a 16% higher lifetime value than customers from other sources. When users refer others to your app, they’re not just bringing in new customers but ones who are more likely to make repeat purchases and engage with your app more often. This means they’re worth more in the long run.
Spotify case
In 2008, Spotify was just getting started. You could only join it if someone invited you, and it was only available in Scandinavia. If you wanted to invite someone else, you had to subscribe first. This made people really curious about Spotify, and they started talking about it.
Later on, Spotify introduced a referral program. If you have five people sign up, you’ll get a free Premium account. This was a great deal, so it encouraged people to invite their friends and family to join Spotify.
3. Use deep linking
Deep linking lets you send your users straight to your app, which is a great way to keep them interested and coming back. By using deep links, you can ensure your app stays on your users’ minds, leading to higher revenue in the long run.
Ancestry case
Ancestry, a company that helps people discover their family history and genetics, used deep links in its emails to encourage users to check out its app again.
Their email campaign, «The Ancestry app can do that?» had buttons that said «Explore the app» and took users right to the app to check out the feature being highlighted. By linking their app with these deep-linked emails, the company saw a threefold increase in users’ engagement with its features.
4. Optimize onboarding
A smooth signup process is essential for keeping users coming back. You want to make an excellent first impression and make it easy for users to start using your app. If the login process is complicated, you might lose users right away.
Temple Run 2 case
Temple Run 2’s interactive tutorial showed users how to play the game while playing it.
The tutorial showed users how to avoid obstacles before they appeared, allowing them to learn the game’s controls and practice using them in context. This learning-by-doing approach helped reduce mental friction during the onboarding process, making it easier for users to understand and engage with the game.
5. Never stop testing
To know if your onboarding, ad, or anything works well, you have to test it. Companies like Temple Run 2 and Spotify got where they are because they tested their ideas and figured out what works best.
Before you go
Keep your hand on the pulse by monitoring your LTV numbers regularly. Use an app analytics platform like AppMetrica to accurately measure, predict and see improvements in your app’s user LTV.
