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How to calculate user lifetime value

Are you aware the lifetime worth of your app’s customers? You need to! Hold studying to study all about buyer lifetime worth, why it’s vital, and how you can calculate it.

The best way to calculate person lifetime worth?

What’s buyer lifetime worth?

The lifetime worth (LTV) metric reveals the quantity of income earned from all transactions that happen in the course of the lifetime of a median buyer, with lifetime referring to the standard span of time (whether or not days, months, or years) {that a} buyer makes purchases from your small business.

LTV is a common enterprise metric that may also be utilized particularly to your app. This text will clarify how you can calculate the LTV of app customers.

However first, it’s vital to know why LTV is so vital. Listed here are some the reason why it ought to matter to you:

  • Helps predict future success;
  • Reminds you of how vital it’s to earn buyer loyalty;
  • Lets you keep in your advertising finances, holding you conscious of prices which might be getting too excessive;
  • Lets you determine the following steps in your cell advertising plan.

The best way to calculate buyer lifetime worth?

Earlier than you’ll be able to calculate buyer lifetime worth, there are a couple of different formulation that should be handled. The outcomes of these calculations shall be plugged into the LTV system.

Common Income Per Consumer (ARPU)

First, you need to work out how a lot income is earned from the common person. See the system under:

Complete Income/Complete Variety of Lively Customers = ARPU

There are some things to find out earlier than calculating ARPU:

  • Will this calculation be finished on a month-to-month foundation, weekly foundation, or each day foundation?
  • What defines an energetic person? Are you solely going to depend each day energetic customers, or will you embrace all customers?

Predicting common buyer lifespan

The following calculation will enable you to predict the common lifespan of your app’s customers. There are two steps concerned:

1 – Calculate churn fee – That is the share of customers who stopped utilizing your app.

Complete Quantity Of Customers Misplaced/Complete Quantity Of Customers At The Begin Of A Interval = Churn

2 – Predict the common lifespan of a person.

1/Churn = Common Consumer Lifespan


Virality is the common variety of referrals a buyer makes. However this step is elective.

In reality, most entrepreneurs don’t even have entry to the info that may allow them to measure virality. Such entry requires referral packages which might be constructed into your app.

So don’t fear in the event you aren’t capable of full this step. It’s not needed for calculating person lifetime worth.

Placing all of it collectively within the buyer lifetime worth calculation

After getting accomplished the earlier steps you’ll be able to put the outcomes into the shopper lifetime worth calculation. See the system under:

[ARPU x (1/Churn)] + Referral Worth = LTV

Keep in mind, including the referral worth is elective. You possibly can take it out of the system in the event you don’t have this info.
The best way to use the LTV metric
After getting accomplished the shopper lifetime worth calculation, it’s best to put this metric to good use. Here’s what that you must do subsequent:

  1. Calculate buyer acquisition price (CAC).
  2. Make it possible for LTV is bigger than CAC.

If LTV is bigger than CAC, you’ll be able to proceed along with your present advertising plan. But when LTV is decrease than CAC one thing wants to alter.

  • You possibly can cut back paid person acquisition prices;
  • Or you can encourage clients to make extra purchases;
  • You possibly can additionally strive growing person retention or referrals.

When you really need your app to make a revenue that you must calculate person lifetime worth. When you don’t, you gained’t be capable of hold monitor of your app’s capacity to generate income.