Friday, 17 June 2016

Understanding Math of the App Business - ARPU and LTV


In this post, we will discuss App revenue per user and Life time value as well as tips to help engaging and retaining current app users.  

Analyzing two more key metrics of an app business 

1. ARPU - Average Revenue Per User 

2. LTV Life Time Value of an App User, continued from previous topic . 


So Let’s get started!

TIP: Focusing on user retention gives a whole new set of opportunities for to drive user love.

4 – Average revenue per user (ARPU)
The average amount of money each customer contributes to the revenue from an app over a given period. ARPU is commonly calculated in monthly terms and by monthly active users. 

A simple math to measure your ARPU is as follows,

ARPU app metric formula:

In some cases it can also be done using total lifetime values, by dividing lifetime revenue of the app by total number of app users. 

For example: 

If your app has made $10,000 from in-app purchases since the launch / app has been used by 5000 people in total, 

ARPU = 10000/5000 = $2. [Total sales / Total number of app users.] 

Another version of this metric, ARPPU, can also be applied. 

It means average revenue per paying user, aimed at calculating the impact of paying users on the generated revenue. 

ARPPU = Revenue / Number of paying users.

5 – Lifetime value (LTV)

Lifetime value is considered by most to be the primary revenue metric. It represents the value of the app and how much each app user is worth during their lifetime. 

LTV revenue can be measured in a dollar amount, social sharing, articles read etc., and can be split by average monthly value or value per customer across all channels.

LTV formulas will help you assess the efficiency of your spendings to gain customers with the app. The main factor here is that LTV should be greater than 

CPA – cost per acquisition

Measuring lifetime value of a customer is aimed at figuring out how much profit you can expect from him (or a segment of customers) during the entire time.

Factors of the LTV equation include frequency of user transactions, the monetary value of those, and the time customers continue to interact. So a projected LTV might be equal to average value of a conversion multiplied by average number of conversions multiplied by average customer lifetime.

Example: 

The average in-app purchase is $5 x the average user makes 5 purchases a year x the average customer stays with your company for 10 years = $250 LTV per customer.

Next Topics to be covered:
 

*Last two metrics out of​ seven 
Key App Metrics of an App Business
1. What happens after you get customers to your app? 
2. How do you keep them engaged and turn them into loyal customers?

Hope you like and follow these useful tips. . .

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