Understanding what lifetime value of a customer really is, how to calculate it, and why it’s important can help you optimize the success of your mobile marketing endeavours.
What is lifetime value of a customer?
Put very simply, lifetime value of a customer is a measurement of the monetary value a user creates over time. LTV formulas look at all of the value a user contributes throughout his or her lifetime, be it through paid app downloads, in-app purchases, or spreading the app to other paying users through social media engagement.
How is LTV calculated?
Customer lifetime value formulas can be as complicated or as simple as you want to make them. There are very complicated equations that exist for determining customer lifetime value, but most mobile app developers could benefit from even a basic understanding of LTV.
A basic formula for calculating LTV is the average value of a sale, times the amount of sales for a particular customer or customer segment. This formula fails to take into account things like social engagement, but there are advanced LTV calculators that can help you create a fuller picture of LTV.
Why is it important to know LTV?
The reason mobile marketers need to understand LTV is that it helps them know where to dedicate their marketing spend to maximize return on investment. LTV provides mathematical proof for the basic marketing tenet that not all customers are created equally. If you can determine the LTV of users from a particular segment, this would give you a baseline for determining how much you should be willing to spend to acquire new users from that segment.