Lifetime value (LTV)

Lifetime value, or LTV, is an estimate of the average revenue a customer will generate over the time that they use a given product or service.

What is LTV?

Lifetime value is a core metric in mobile business growth, often used to determine how valuable a user is over the span of time that they’re using an app. 

By properly optimizing revenue streams like in-app purchases, in-app advertising, and subscriptions, LTV helps marketers pinpoint exactly how much money they can afford to spend on user acquisition while remaining profitable.

Why is LTV important?

Combined with the average revenue per user, lifetime value is a golden metric to determine the total prospective revenue or value of your users. In the free-to-install app economy, it’s an essential metric to measure business health.

Here are a few key benefits of measuring LTV:

• You can’t improve what you don’t measure: 

Once you begin measuring LTV and breaking down the various components, you’ll be able to employ more targeted strategies around pricing, advertising, and user retention with the goal of continuously improving your UX and increasing profit.

• Make better user acquisition decisions: 

When you know what to expect in terms of average earnings per user, you can increase or decrease spending to ensure you maximize profitability and continue to attract the right audience.

• Improve forecasting: 

LTV predictions can help you make forward-looking decisions around ad spending. LTV forecasting minimizes the risk of underspending and missing out on potential business or wasting money by overspending.

• Boost customer loyalty and retention: 

When a company consistently provides value in the form of a great, intuitive app, excellent customer support, or an excellent loyalty program, customer loyalty and retention tend to soar. 

You can increase retention by focusing on users who have a higher LTV. A lower churn rate, more referrals, and favorable reviews are all indicators of more loyal users.

• Drive recurring purchases: 

LTV enables you to track annual or lifetime usage of your users’ web or app visits, and use that information to plan ways to boost repeat business.

• Charge up profitability:

In general, higher LTV results in greater profits. By keeping users for longer stretches of time and building a model that encourages them to spend more, you should see the benefit show up on your bottom line.