Introduction
It’s important to measure the long-term value of users in your app, so you can better understand the success of your marketing. To measure the value of users, you can look at the actions they perform in the app.
Customer lifetime value
Say you have a yoga app. Let’s call it “Balance.” Different actions will have different values to your business. For example, when Sally makes an in-app purchase, that’s great for your business because it generates direct revenue. Another user, Jeff, refers a friend, which creates indirect value. The total value from these kinds of user actions is called a “customer’s lifetime value” (or CLV).
A customer’s lifetime is the time in which a user regularly engages with your app.
Their value is how frequently a user performs valuable actions in the app, and how much each of those actions are worth to your business.
Together, these make up a customer’s lifetime value.
Example
For example, if your conversion tracking shows that users stop making purchases in your app after two years, that’s your average customer lifetime.
If your conversion tracking also shows that on average customers make 3 in-app purchases over that two-year lifetime and if those in-app purchases are worth an average of $40, $50 and $90, that’s $180 dollars in customer value from direct revenue.
When calculating customer value, you can also include other valuable actions such as friend referrals. If a referral spends an average of 70 dollars on in-app purchases, you can also include this indirect revenue in customer value.
Using this example, the total direct and indirect revenue represents an average customer lifetime value of $250 over 2 years.
When calculating CLV, be sure to consider all the value a customer can deliver to your business over time. If you have finance, analytics, and customer relationship management teams, they can help you obtain the data needed to calculate CLV.
