How Do You Measure Customer Lifetime Value (LTV)?

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If 76% of the average app’s new users will fall away within three months, how do developers know where to concentrate and maximize their marketing dollars? The Apps Alliance Business and Revenue Working Group released a best practices guide for measuring and maximizing customer lifetime value (LTV), which may increase revenue and ultimately lead to a successful, sustainable business.

LTV, defined as the total revenue generated by a single customer from app download to deletion, can be calculated in various ways, but is only valuable if the company retains benchmarks for measurement. For example, comparing LTV to customer acquisition cost can be especially helpful as companies strive for sustainability. Giving a more holistic view of the customer and revenue, LTV demonstrates the need for engaging users beyond the typical “churn and burn” strategy.

As the app marketplace matures, companies are moving from relentless focus on acquisition to spending more time thinking about retention and LTV. This resource is a fantastic educational offering, helping companies grow their businesses and increase their emphasis on customers.
— Robi Ganguly, CEO at Apptentive

Rather than focusing solely on total revenue, LTV helps developers identify more lucrative customer segments and provides an insightful glimpse into future profits. With an emphasis on integrating LTV into a business, the paper explores the importance of LTV, details various methods for calculation, and outlines best practices for optimizing LTV.

The most recent whitepaper on the economics of Lifetime Value of customers is hugely important for app developers who are looking to make rational decisions about growing their business. In one paper, the Application Developers Alliance has aggregated some of the best thinking around the key issues of measuring and optimizing for the lifetime value of app customers.
— Trevor Cornwell, Founder + CEO, appbackr inc

Again, LTV focuses on quality over quantity. There is no silver-bullet technique with LTV, and there are lessons to be learned as to how this metric fits best with any given business. Regardless of calculation method, the paper demonstrates how LTV is becoming a required metric for gauging the health of a business.

For any mobile app developer today, failing to effectively track, measure, and optimize the lifetime value of their users is no longer an option in order to run a sustainable business. AppLift is happy to have contributed to this handy guide by the App Developers Alliance, which makes LTV as a major user acquisition and monetization tool accessible to all.
— Thomas Sommer, Sr. Content Marketing Manager at AppLift

So, is LTV worth the time and effort if your company isn’t already utilizing this metric? The short answer is yes, and the App Developers Guide to Measuring Customer Lifetime Value will ease the learning curve as businesses begin to truly understand the value of understanding their customers in a different way.

Mobile application developers invest a significant amount of capital and/or time in the development of their mobile apps. While tried and true justifications have been A/B tested for every aspect of the design and User Experience, very few publishers take the time to truly understand a customer’s lifetime value (LTV), and as such, have a poor understanding of the top-threshold their customer acquisition cost needs to remain within to sustain a healthy, profitable business. The Application Developers Alliance’s Business and Revenue Working Group did an incredible job highlighting how to best calculate, manage and optimize customer lifetime value of mobile app users - a vital step in building a successful app.
— Keith Petri, Vice President for Strategic Partnerships at IgnitionOne

Is your business calculating LTV? If so, are you taking full advantage of this metric to gain a holistic view of your users and revenue?

You can read the App Developers Guide to Measuring Customer Lifetime Value in full here. The Application Developers Alliance held a Google+ Hangout discussion about this paper on October 16th, 2014. You can view the video here.