Customer Lifetime Value: Introduction
In the world of apps, the value of customers over their lives can be difficult to measure. That’s because a customer’s value isn’t measured just by the amount of money they spend on your company’s product(s). It is also measured by the usage habits they exhibit when using your app. But before you begin to measure mobile Customer Lifetime Value (CLV), you need to understand what makes up a mobile Customer Lifetime Value.
So, let’s begin by explaining what a customer lifetime value is:
A Customer Lifetime Value can be defined many ways, depending upon who you ask. As app developers, a Customer Lifetime Value is measured by the amount of money spent in the app, the amount of time spent interacting with your app, and the likelihood of recommendations from the customer to other potential customers. All these factors add up to give you a Customer Lifetime Value that can be used to predict your app’s success or failure for the future, as well as when to make changes in the app.
Now, is the Customer Lifetime Value 100% accurate and reliable? Of course not. It changes from time-to-time because the customer will change.
Customer Lifetime Value Example
For example, one year a few customers may make in-app purchases once a month since their jobs are steady and well-paying. Then the next year, those same customers may make only two in-app purchases for the entire year because of job layoffs. Our financial and time management situations are constantly changing, so try to factor in “hard times” when using a Customer Lifetime Value to predict your app’s future.
Measuring Customer Lifetime Value
Now that we know a Customer Lifetime Value is made up the money and time spent interacting with your app, as well as recommendations for your app, we need to talk about how to measure these components.
Money – You can measure a customer’s monetary contribution through a variety of methods. One of the most common methods is using purchasing data to produce an Average Revenue Per User (ARPU) number. This number will give you a concrete figure you can rely on when formulating a Customer Lifetime Value. Seeing how much a person monetarily invests in your app/company will also give you a good idea of a customer’s loyalty.
Time – While the money aspect of the Customer Lifetime Value can be easily measured, the time aspect isn’t as easy to measure. So, how in the world do we achieve that crucial part of the Customer Lifetime Value? We analyze more data! Analyzing usage patterns will help determine how much time the customer is spending in your app. You will be able to see how reliable customers are based on how often they interact with your app. Dependability will then be factored into the Customer Lifetime Value as part of the “time” component. When you have dependable, loyal customers, your app has a bright future ahead.
Recommendations – The last part of a Customer Lifetime Value is also a difficult one to measure. Successful recommendations (when a customer recommends an app to another person who then becomes a reliable customer) can be difficult to measure if you don’t have the correct data collecting tool in place. Having a spot on the app registration form for the customers to enter the name of the person who recommended the app to them is an excellent starting point. You can then tally up the number of users that a person recommended and factor that number into the customer’s lifetime value. Another great way to measure a customer’s recommendations? Allow users to rate, review, and make public posts about your app on your website and/or the customer’s personal social media page!
Why is Customer Lifetime Value important?
By this point, you are probably thinking, “Why is Customer Lifetime Value important?” This is a common question, especially considering the time and effort that goes into calculating a Customer Lifetime Value. As mentioned before, a Customer Lifetime Value is important because it can be used to predict your app’s future success or failure. Additionally, and perhaps more importantly, it gives you the tools to determine the need for supplemental marketing, such as in-app ads and customer acquisition campaigns.
Deciding to bring in more revenue by using in-app ads is a common dilemma. On one hand, you don’t want your customers to feel annoyed when using your app because of advertisements. On the other hand, you need that extra revenue in order to keep your app live, your customers happy, and to turn a profit. A Customer Lifetime Value can help you make this important decision because it can show you how much the average customer is benefiting you and your app on a daily, weekly, monthly, or yearly basis.
Finally, a Customer Lifetime Value is important because it will help you decide when to launch customer acquisition campaigns. A customer acquisition campaign is a time to recruit new customers. You can do this by offering a discount on a customer’s first in-app purchase, offering reward points for later use to customers who download the app for the first time, and so on. When your Customer Lifetime Value is low and not enough to surpass the app’s cost per customer (CPC) number, then a customer acquisition campaign is needed to ensure the app’s future.
Conclusion
A customer’s lifetime value is a prized possession for app developers and the companies behind the apps. You need a properly calculated Customer Lifetime Value to give you information that you can use to benefit your company and/or app when it comes to cost and effectiveness. You should always be looking for ways to improve an app and to reach more customers. But with a reliable Customer Lifetime Value, you can determine when changes need to be made to increase user acquisition, engagement, retention, and revenue. The health of your app depends on your app’s Customer Lifetime Value and your response to increase its potential and sustain it for years to come!
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