Increasing your customers value and getting a steady revenue flow from them is non-trivial task. In this post we’ll try to list the most common ways to increase the lifetime value (LTV) of your existing users.
There are two ways to grow your business. The first is to acquire new customers. The second is to focus on retaining your existing users and increase the users Lifetime Value. Data shows that the second is a far more effective strategy for producing a steady, predictable increase in revenue. Despite this, many businesses spend far more time and money on acquiring customers than on retaining existing ones.
Just 16% of companies focus more on retention than acquisition, diminishing the old wisdom that it’s cheaper to keep a customer than to find a new one.
What is LTV
Lifetime Value (LTV) is like its name shows, the average value of a customer over his lifecycle with the app or service. So LTV is the measure of user’s value over time. LTV is one of the most important metrics to track. The value provided by LTV has multiple forms. It doesn’t necessarily means that only user who actually brings money in your app or service has its value. A user can bring ad revenue. Or he can share your app to other users that do spend money with it, and it means that he is valuable.
How to calculate LTV
LTV is not calculated on the entire user base, but on different segments and cohorts to provide the possibility to analyze different patterns and characteristics. Although many developers consider that tracking LTV is very important, very few of them actually measure this metric. It is easier for them to calculate just the Average Revenue Per User (ARPU) which is measured on the entire user base not on different categories of users. Calculating LTV is more useful for marketers and developers.
Here are some main factors that influence LTV. Any increase of these factors will lead to positive results over the LTV:
- Retention – It means how often users return to your app after the initial installation. Marketers believe this is the most important metric for calculating LTV because as often a user returns to your app, as many value can bring to your app.
- Monetization – This is of course, how much money a user spends on the app. That means an increase of spends will positively affect LTV.
- Virality – This is the number of users brought in by each user via social media, word of mouth etc. It is almost as important as the monetization.
- Average Revenue Per User (ARPU) – This is only about revenue as its name states. That can be calculated by dividing total revenue by total downloads.
- Average Revenue Per Daily Active Users (ARPDAU) – Is ARPU calculated daily dividing Daily Revenue by Daily Active Users.
There are some methods to calculate LTV depending on the category of the app and the metrics available for that app.
This method can be used when you have a huge user base that spends a lot of money on your app. The algorithm to calculate it is:
Avg. Daily Revenue = Last 30 Days Revenue / 30
Avg. Daily Active Users = SUM (Daily Active Users) for last 30 days/30
ARPDAU = Avg. Daily Revenue / Avg. DAU
LTV = ARPDAU x average user retention.
Method that uses Virality Coefficient
If an app has the coefficient of Virality K = 1 it means that every user of the app brings 1 user into the app.
LTV = (1+ K) X ARPU.
Increasing your LTV can be as simple as extending your billing cycle, or as tough as changing your product’s natural lifecycle. Below, we’ve listed six effective ways to increase your average LTV and generate more revenue from your company’s existing customers.
Encourage customers to switch to an annual billing cycle
If your app sells a recurring product or service the total amount of time that customers continue paying for your service is one of the most important figures for determining LTV.
Users that stick with your app drive predictable revenue, while users that only pay for your service for a month or two generate very little. In some cases, customers that only use your app for a month or two can produce negative revenue.
If your users stay for an average of less than 10-12 months, one easy way to improve LTV is to encourage them to switch to an annual billing cycle. This reduces churn by committing your customers to a year of usage, producing a higher average LTV, this will give you more time to demonstrate your users the value of the service you provide.
This will also lead to cash flow increase and the money that users pre-paid could be reinvested into your company and the app or service themselves. Look at it as if a customer is investing in the company’s growth by lending money at zero interest.
Another advantage of switching to annual billing lifecycle is easiness of forecasting the revenue. In the long run it will help you with making decisions concerning your revenue and growth.
Very few users will extend their billing cycle unless you give them an incentive to make a switch. One great way to encourage customers to switch to annual payments is to offer a significant discount (typically in the range of 10-20% off), or to provide 1-2 months or additional usage for free.
Take advantage of your product’s natural life cycle
Does your service have a life cycle? Services and apps that people use over a period of time like seasonable apps for vacations or services for schools have a natural lifecycle — a period of use before they go dormant for another occasion.
One simple way to increase your average LTV is to take advantage of this natural life cycle to encourage repeating uses. Since not all services are suitable for recurring billing you still can encourage your users to make repeating purchases through remarketing.
If you know when your users are going to actually use your service again, send out an email that promotes your service features that are gonna be useful in that period. Since most of your users are going to be in need of your service at that period of time, a subtle reminder can actually lead them to make a payment.
Use deep linking
Deep Linking is very useful in terms of pointing out your existing users inside some actual part of your app. An interesting result in this area was made by Medium for Hotel Tonight. When a user typed in “Hotel in Seattle” on mobile version of the site he was directed through a deep linked ad to the list of hotels in Seattle within the Hotel Tonight app. It converts into a 99% increase in revenue.
Building Virality Into Your App
The major factor of an increased user LTV is virality. The mobile growth strategy always involves your existing users inviting their friends. There are four important stages: awareness, download, activation, and sharing. As you can see, these correlate closely with the factors of customer LTV.
Improving the Likelihood of App Sharing
Using deep-links to guide users to the part of your app that is of most interest to them can not only move them down the purchase funnel, this also increases how often your users share. Users who arrive from a deep link share more links on average. They cross the “viral boundary” that every app seeks.
Tracking and Rewarding Referrals
Building out complex referral programs proves to be quite a difficult task. You can use services like Branch to build fully automatic referral mechanism. Since Branch links can store user parameters, there is no need to use referral codes to receive rewards, further reducing one or more steps in the customer acquisition process.
Optimize your onboarding process
You have to spend time and effort for optimizing and personalizing the onboarding experience. You can test different onboarding flows to discover what suits best for your app. The best onboarding is streamlined, doesn’t require exiting an app and should involve using common social networks to create an account.
Use smart push notifications
Push Notifications can be a good way to engage your users. If you use them wisely you can increase user experience. Don’t make the huge mistake of being too intrusive. Don’t annoy your users.
Segment your users and make your push notifications personalized in order to maximize the engagement. If your app has some major distinctions between users – them to your advantage so that people would think you care about them at least a little. Don’t forget that timing is everything and number of words (128-character limit is ideal) that you used counts. Lastly, do A/B testing to benchmark between the alternatives to pick the best.
Optimize your UA strategy with mobile advertising
Don’t forget that your User Acquisition strategy has a relation with your LTV. You need to analyze all necessary data and optimize your app UX in order to maximize your users’ Lifetime Value. If your app has just launched and you want to both increase downloads and maximize LTV of your users, you can try boost campaigns. They help you to decrease the UA costs and to increase your LTV accordingly. Before spending the entire UA budget, consider running some small scale tests for at least 3 weeks to see where you should concentrate your campaign better.
Be accessible when your user needs
Tracking LTV of an app user is an ongoing process. You have to stay in touch with your users, be aware about their needs and their desires and try to make the best possible app to serve their purposes.
Use social networks to communicate with your users and to grow their confidence into your brand. These channels are great for sharing your app, too. If they are satisfied they will spread the word about your app and they will become valuable users. Don’t forget that your response time matters in social platforms. Use the channels with real-time strategy to avoid dissatisfaction.
Create an in-app support funnel to let your users reach you whenever they want. Follow the reviews to find the problems of your app and answer the questions. All of these will also help you to update your app when needed.
Upsell and cross-sell
If you sell several services inside your app, up-selling is one of the easiest ways to raise average LTV. Upselling and cross-selling (which are similar, but not the same) are two simple, effective ways to increase the amount each of your customers spends within your app or service.
Upselling involves selling a more expensive version of a specific product or service. If you deliver a service, upselling could mean increasing the scope of that service. If you offer SaaS software, selling upgrade from a basic plan to a more expensive one to a customer will definitely help increasing LTV.
Cross-selling, on the other hand involves selling complementary product or service to your customers. A customer buying a phone probably needs a case for it too, so it’s a natural choice for you to cross-sell and increase the value of the transaction.
Here are some examples for cross-selling and upselling to your current customers:
- Offer bundle products – Group different items together and sell them at a lower price than what they would have sold for separately.
- Use a sidebar widget with popular choices – You can have a small list of popular products in your app. That would speed up the choice process for your customers.
- Add complementary products at checkout – Products you offer as cross-sells should address the needs of your customer. Ideally they should complement the primary product in the shopping cart. But be subtle and discreet and never intrusive, opt-out should be an easy option from this offer.
- Keep recommendations limited – Don’t overwhelm potential customers with too many choices. Otherwise, you run the risk of customers abandoning the card. When faced with a choice, it’s easier for customers to decide between three items than ten.
Amazon.com has perfected upselling and cross-selling, and uses both practices to drive a huge amount of additional revenue every month. Used properly, upselling and cross-selling can both help you generate an extra 10% or more revenue per month from your existing customers.
Bekitzur can help
Our company has major expertise in marketing the apps and services preserving high retention rates and increasing LTV gradually among the user base.