The value of a regular customer is not lost upon any smart business.
Selling a product or service to a customer once has temporary value. That money can quickly go away.
A regular customer is like a consistent investor. The rising costs of customer acquisition only make it imperative for a business to focus on retaining customers.
The numbers show how much factors like trust and reliability affect buying decisions. Over 81% customers make a purchase decision based on how much they trust a brand.
Trust, reliability, and other key factors all contribute to one app metric - customer lifetime value (LTV).
What is customer lifetime value?
Anyone using a free Android app maker understands the significance of customer lifetime value or LTV.
What does it mean?
Customer lifetime value refers to the material value a customer brings to a company. It is a very powerful metric for marketers trying to enhance other KPIs like retention and revenue.
Marketers use the following formula to calculate customer retention.
Customer LTV = Customer Value x Average Customer Lifespan
Customer value here is the ratio between average purchase value and average purchase frequency.
How does increasing customer LTV help mobile app revenue?
A business makes money in two ways - it either finds new customers or retains existing ones.
Acquiring new customers has slowly become a very expensive prospect. Decreasing attention spans of mobile users are making it increasingly difficult for new companies to make a mark.
How many ecommerce apps and brands does an average customer need? Don’t be surprised if the answer is in single digits, or even less than five.
A report even shows that most consumers won’t notice if 77% brands in the market disappeared.
In such a competitive world, retaining old customers and extracting more value from them is crucial. Increasing customer lifetime value is also part of the same narrative.
Boosting the value existing customers provide can help a company save a lot of money on new customer acquisition.
How does one increase customer LTV? Look at the formula mentioned previously. Increasing customer value and average customer lifespan will grow LTV.
There are many tactics companies use to boost the LTV of their app users. We discuss some of the most crucial tactics in the following sections and cover how they have a direct impact on customer LTV.
#1 - Keep updating what you offer
People who use Netflix for a while never really leave its ecosystem. They may cancel their subscription for a month or two, but come back a few months later.
Why? How is Netflix able to hold such power over its users?
Quite simply, Netflix never stands still. It keeps updating its library of content to always give people a new reason to keep subscribing. There is always something new and interesting on its platform that makes the monthly subscription worth it.
The LTV of an average Netflix user is much more.
There’s a lesson you can draw here as well. If you run a small ecommerce app or a blogging website, you must always offer something new to your existing customers. Standing still is the kiss of death in the digital age where people only want to know what you’ve done recently.
Offering something new naturally means remaining actively engaged with your customers and their feedback. If you do offer something new, your users will start seeing the inherent value of your app. This can open up other opportunities related to loyalty marketing as well.
#2 - Personalize user experience
User experience is a fundamental vertical of every mobile app. People don’t generally use mobile apps that don’t offer a certain degree of performance and experience.
There are countless examples of popular software and mobile apps from big tech companies failing miserably. Look at Google+ and Internet Explorer. They could not provide the user experience their competitors did and are now defunct.
You can probably find endless ways to optimize user experience of your mobile app. The one tactic that will help optimize user experience to specifically enhance LTV is personalization.
Personalization is not a new gimmick. It is an old tactic to make users feel that the app is designed solely according to their needs.
How does personalization work? The degree of personalization can vary depending on the resources a company has. Adding a welcome message that contains the name of the user on the app dashboard is an example of lower degree personalization.
Altering the product or content recommendation algorithm to enhance engagement is an example of higher degree personalization.
A personalized app is like a tailored suit. It can help ensure customers stay with the app for a longer period and increase average customer lifespan.
#3 - Graduate customers to annual plans
We now get into the more tactical aspects of increasing LTV of app users. Graduating customers to an annual plan has many direct benefits. For one, a customer who is part of an annual plan is highly likely to subscribe again.
This is a typical example of the Ben-Franklin effect. After taking up an annual plan once, customers will be more motivated to subscribe again because they want to justify their decision to subscribe in the first place.
Such a tactic can prove very helpful in enhancing overall LTV as it increases customer lifespan immensely. Recurring payments on a monthly plan generally forces customers to review their purchase rationaly. Recurring payments of an annual plan forces them to justify the purchase. The best way to justify purchasing an annual plan is subscribing again.
You can also institute solid payment systems like the Dunning management system. This system triggers the payment process in case the transaction fails. Customers don’t generally have a lot of patience when it comes to dealing with failed payments.
Putting in place the Dunning management system ensures that a payment is triggered again if a transaction fails.
#4 - Increase the price of your products and services
The simplest way to increase LTV of app users is increasing the prices.
Companies today are scared of increasing prices as they don’t want to lose customers as a result. This is a classic case of companies giving too much importance to price as a factor.
A study shows that 64% customers value experience more than price. If your app really provides good value and has a decent base of returning customers, you can afford to increase the prices by 5-10%.
Those running online businesses and trying to convert website to app often overestimate the price-sensitivity of general users.
Increasing prices can directly increase customer value and improve the overall LTV as a result. Being flexible on prices also gives your company a better shot at surviving in the future when you try to scale and manage escalating costs.
A higher LTV can have an immediate impact on the revenue of an app. This article provides a deep dive into the different tactics that help improve LTV and overall app revenue as a consequence.
There are a number of other tactics you put to use. The ones covered here are some of the best ways to have a serious impact on LTV in a short span of time.