In the mobile monetization business, we often discuss the importance and pursuit of high LTV’s, (A.K.A. “Lifetime Value” of a mobile app user), but rarely is there information available that helps app developers understand how to calculate the metrics that matter. I want to take this opportunity to address the mathematics of determining the value of a user, as well as how it affects a developer.
Beyond the actual dollar amount you can tie to a user, there are intangible benefits that you should consider when calculating the value of a user.
Let’s not underestimate the power of:
Referrals - users can refer friends to your mobile app, which can make it grow faster.
Feedback - Users can provide important feedback which can help you make a better app.
User Generated Content - Users might generate content to keep your mobile application fresh and informative.
Marketing Synergy - Users can help with cross-promotion which can increase revenue and profit.
App Store Rank - Users drive exposure of your application in the various App Store listings.
Although great for your business, it’s difficult to tie a dollar amount to these benefits, thus you need to look carefully at the numbers you can quantify. Some of the most important ones are DAU (Daily Active Users), Retention rate, and the Lifetime Value of each user.
Calculating number of active users (DAU)
While a lot of people may download your application(s), you need to know which ones are active. Active users are ones that may click ads or make you money in other ways. It is important to know the total number of those who have merely downloaded your app and those who use it actively. These stats are available on the analytics platform on which you submitted your apps.
Calculating User Retention
To calculate your retention rate, you want to divide the number of active users by the total of installs.
[100 Active Users/ 1,000 Total Downloads] x 100 = 10% Retention Rate
0.1 x 100 = 10%
Calculating Lifetime Value of a User
Depending on your retention rate, you may want to use 30 days or several months to get an average “lifetime” value. Basically, you take the average lifetime of a user and apply the average monthly income per user to that number. This will give you an estimated lifetime value of each person who downloads your app.
Calculating Banner Revenue Over Time
Using eCPM and the average number of banner impressions each user sees, you can come up with estimated revenue each user will earn over their lifetime.
(eCPM/1000) x Average number of banner ads shown to a user.
For example, if you know the average lifetime of a user is ten months and you know they will see an average number of 100,000 ads in that time, you can just plug the number in.
Calculating Other Revenue
You should figure in any other sources of revenue beyond banner advertising. For example, if your app is a paid download, you will want to include this in the total value of each user. Additionally, if you have in-app purchases, the average amount each person spends should be added to the total lifetime value for a user.
Advertising as a Mobile Developer
The value of your users is likely to change –in both directions- over time. If you are lucky, you will notice an increase in the value of each user as you take steps to better monetize your mobile app.
This information will help you get the most bang for your buck - and make a profit - when you advertise your mobile app.