Why LTV is Critical to App Success and How to Find It

User Acquisition

November 7, 2017


min read

Are you using LTV to make smarter acquisition budget decisions?Understanding how to calculate and leverage the lifetime value of your mobile app users in your user acquisition campaigns is critical to spending ad budget wisely.While LTV is arguably the most important metric in determining app success, there is still a lot of confusion around how to define and use LTV for mobile CPI campaigns.In this blog post you will learn how to find and optimize your mobile CPI campaigns for higher LTV, and ultimately long-term mobile app success. Let?s dive in!

Step 1: Define LTV Using Key Post-Install Events

The lifetime value (LTV) of mobile app users, in its most basic terms, is the projected revenue that a user will generate during their lifetime. It tells you how much each new user is worth and how much you can pay to acquire that user.Lifetime value will vary across user segments, from those who only open the app once to your heaviest users. Before you can think about calculating LTV, make sure you identify and track the post-install events that will define your key user cohorts.For example: install, app open, uninstall, initiated checkout, transaction, transaction value, used X feature or did not use Y feature. When defining cohorts consider filtering down to specific GEOs, media sources, campaigns, cohort size, ad groups, creative etc. to find optimization opportunities.

Step 2: Drill Down into Your Target Audience with CPI Campaigns

Now it?s time to do some testing to help define your niche audience ? the key users who will convert and become high value for your app. The first seven days of a campaign is a critical time. This is where you should be the most risky to acquire the data as fast as possible, then pause and make optimizations based on that.Today we?re going to just look at CPI campaigns, but keep in mind you can also run CPC, CPM, and CPCV campaigns as well. You?ll still want to look at the cost per install for those campaigns and ensure LTV is still greater than eCPI.To get the most competitive data, you?ll want to test around 100 installs. This will give you a clear idea of your full funnel and audience value. You can start testing with a $100-$200 daily budget but it will take longer to get this valuable data. I usually recommend kicking off at a higher daily budget to capture your niche and get moving faster.After running some initial tests, you?ll be able to see the behavior or user profile trends that directly influence LTV and optimize your CPI campaigns to acquire those high value customers.

Step 3: Calculate Your LTV

Now that you have a few test campaigns under your belt, you?re ready to calculate the lifetime value of your new users. This will help you hone in on that niche target audience that will give you to most bang for your UA buck. LTV is essentially multiple measurements of game health that includes retention, monetization and occasional organic growth ? specifically a prediction of the value of each individual player.You can choose to define LTV in a number of ways, but one simple place to start with this formula: LTV = Monetization x Retention. The main drivers can be broken down into the following categories:1. Monetization: a measure of how much money a user spends over their lifetime (e.g. paid app installs, in-app purchases, or other revenue generating activities).

Mobile Monetization ARPU Formula via chartboost.com/blog

2. Retention: a measure of user engagement or in other words how often users return to your app after the initial install. This includes the frequency of return and the duration.To measure retention, first calculate churn rate. Churn is the percent of users who stop using your app within your given timeframe.

Calculate Mobile Churn with Formula via www.chartboost.com/blog

Once you know churn, take its inverse (1/churn) to find the predicted amount of time a user will spend engaged with your app.

Mobile Retention Formula via www.chartboost.com/blog

Step 4: Optimize Mobile Advertising Campaigns for High LTV

At this point you?ve identified key post-install events, launched your CPI campaign to test different audience segments, and calculated LTV. It?s time to start analyzing the results and uncover which channels are giving you the most valuable audience segments. You?ll want to invest more ad spend where LTV is greater than your CPI.For example, let's say you?re running a Chartboost CPI campaign and you notice that US Android players have the highest LTV:CPI ratio. To maximize your returns, you?ll want to invest more ad budget to optimize audience targeting on this channel and acquire more valuable users.The Golden Ticket: As long as the average lifetime value is greater than the cost per install (CPI), you?ll see positive returns on your campaign investments.

  • LTV > CPI = ?
  • LTV < CPI = ?

Now that you know how to calculate LTV, you can leverage this metric in your user acquisition strategy to ensure your ad dollars are being spent on the audience generating the most long-term revenue for your app.Helpful Mobile LTV Resources

If you?re an advertiser looking to reach top quality players, signup at Chartboost.com to start launching campaigns today!