Introduction
Once you’ve calculated lifetime value, you can more accurately calculate how much to pay for Success Actions and Proxy Actions.
Set a new target CPA for Success Actions
If the average customer lifetime value for your app is $250 dollars, it would make sense to pay up to this amount for a Success Action, since that’s what the customer is worth to your business. Make a cost per action (or CPA) bid in your App campaign up to $250 dollars.
Tip
Remember, only count the first Success Action made by your customer when setting up conversion tracking. This will prevent overpaying for any repeat Success Actions from the same customer.
Set a new target CPA for Proxy Actions
If the Success Action you wish to measure isn’t completed daily by at least 10 different users in your App campaign, you’ll need to choose a “Proxy Action” instead. A Proxy Action is an event that is expected to lead up to the Success Action. If you’ve calculated CLV for the Success Action and you know that the Proxy Action correlates with the Success Action, you can figure out what portion of the customer’s CLV to attribute to the Proxy Action.
Then you can work out how much to pay for the Proxy action.
Say 60% of users who complete a Proxy Action, like adding their payment information, also complete a Success Action of purchasing an upgrade (but this is less than 10 users a day). That means we can attribute a portion of the $250 dollars CLV to the in-app Proxy Action of adding payment information.
So for each Proxy Action of adding payment information, it is worth bidding up to 60% of the CLV or $150 dollars CPA, since this will likely lead to the Success Action.
Using this calculation, you can set CPA bids in your App campaigns for Proxy Actions, based on estimates of lifetime value.
