Calculate CLTV for mobile apps using our free tool.
Customer Lifetime Value (CLTV) is one of the most critical metrics for any business, especially for mobile apps. It helps app developers and marketers understand how much revenue a customer generates during their entire relationship with the app. Knowing this value empowers you to make smarter marketing decisions, optimize spending, and, ultimately, grow your app in a sustainable way.
Defining Customer Lifetime Value (CLTV)
So, what exactly is Customer Lifetime Value?
CLTV is the total amount of revenue you can expect to generate from a customer throughout their entire relationship with your app. This isn’t just a random figure—it gives insight into how much you should be spending on acquiring new customers and retaining existing ones.
The formula for CLTV is simple, but it can vary depending on the business model and the available data. For mobile app developers running subscription-based or SaaS models, calculating CLTV offers a clear view of how much value each user brings in over time.
At its core, CLTV allows you to answer these key questions:
How much should you spend on customer acquisition?
Is it more profitable to focus on retention or acquisition?
Which user segments offer the most value over time?
In short, CLTV is the secret weapon that helps you maximize the ROI of every marketing dollar spent.
How to Calculate SaaS CLTV
Calculating CLTV may sound complex, but it's straightforward when you have the right metrics. There are two main ways to calculate CLTV, and our calculator makes it easy by letting you choose the method that works best for you.
1. Calculating CLTV Without Churn Rate (The Basic Approach)
This is the simplest way to calculate CLTV. If you don't have detailed churn data, you can still get an estimate using the following formula:
CLTV = ARPU × Average Customer Lifespan
Where:
ARPU (Average Revenue Per User) is calculated by dividing your Monthly Recurring Revenue (MRR) by the total number of customers.
Average Customer Lifespan is the average number of months a customer stays subscribed to your app.
This method works well when you don't have exact churn data, or your churn rate is relatively stable.
2. Calculating CLTV with Churn Rate (The Advanced Approach)
If you know your churn rate, you can get a more accurate estimate of CLTV. Here's the formula:
CLTV = ARPU / Churn rate (as a decimal)
This formula takes into account the churn rate, which is the percentage of users who stop using your app each month. The lower the churn rate, the longer the customer stays with you, which increases their lifetime value.
You can calculate churn rate by dividing the number of customers who leave during a given period by the total number of customers at the beginning of that period. A high churn rate means that users are not sticking around, while a low churn rate indicates long-term users.
Our calculator makes it easy to use either of these methods, depending on the data you have available. If you want a quick estimate, use the basic formula. If you want more precision and have access to churn data, use the second formula for a more accurate CLTV.
FAQ
1. What is the best way to calculate CLTV for my app?
The best method depends on the data you have. If you have a reliable churn rate, use the advanced formula. If not, use the basic method with average customer lifespan. Our calculator allows you to choose the best option based on your data.
2. What if my churn rate is very low?
A low churn rate means that users are sticking around, which will give you a higher CLTV. Just make sure that your churn rate is accurate, as overestimating can lead to misleading results.
3. How accurate is the CLTV estimate from this calculator?
Our CLTV calculator provides a solid estimate based on your input data. The more accurate your inputs (e.g., MRR, churn rate, average customer lifespan), the more accurate your CLTV calculation will be.
4. Can I improve my CLTV?
Absolutely! Focusing on improving user retention and reducing churn is key. Enhancing the user experience, offering incentives for long-term use, and introducing referral programs (like those powered by Advato) can all help increase your CLTV.
5. How often should I recalculate my CLTV?
You should revisit your CLTV calculation periodically—especially if your churn rate, user behavior, or pricing model changes. Having up-to-date CLTV data will ensure you’re making informed marketing decisions.
6. What is ARPU, and how does it affect the calculation?
ARPU stands for Average Revenue Per User, which is calculated by dividing your Monthly Recurring Revenue (MRR) by the number of customers. It plays a central role in calculating CLTV because it reflects how much revenue you generate per customer in a given month. The higher the ARPU, the higher the customer lifetime value will be.
7. Why does the calculator ask for both "average customer lifespan" and "churn rate"?
The calculator allows for two different ways to calculate CLTV. If you don’t know your churn rate, you can estimate CLTV using the average number of months a customer stays. If you do have a churn rate, you can use that instead for a more precise calculation. Both methods give a reliable estimate based on the available data.
8. What happens if I leave the churn rate blank?
If you leave the churn rate blank, the calculator will automatically use the "average customer lifespan" field to calculate your CLTV. This makes the tool flexible—whether you have detailed churn data or just a rough estimate of customer retention.
9. How do I calculate the churn rate if I don’t have it readily available?
Churn rate is typically calculated by dividing the number of customers who leave during a specific period by the total number of customers at the start of that period. For example, if 20 customers leave in a month and you started with 200 customers, your monthly churn rate would be 20/200=0.10, or 10%.
10. Does the calculator work for all types of subscription apps?
Yes! The calculator is designed for subscription-based mobile apps and SaaS, but the formula can be applied to a variety of business models that rely on recurring revenue. Whether you’re offering monthly subscriptions, freemium models with in-app purchases, or any recurring revenue setup, the CLTV calculator can give you insights into the long-term value of your users.
11. Can I calculate CLTV for different user segments?
Yes, you can calculate CLTV for different user segments by adjusting the inputs. For example, you can separate your power users from casual users and input different values for ARPU, customer lifespan, and churn rate for each segment. This helps you understand which segments are the most valuable and where you should focus your marketing efforts.
Importance of Customer LTV in Mobile Apps
Understanding your CLTV can be the difference between success and failure. Knowing your CLTV helps you budget for customer acquisition and retention in a way that maximizes revenue and reduces costs.
Here’s why CLTV is especially important for mobile apps:
1. Optimize Marketing Spend
By knowing your CLTV, you can determine exactly how much you should be spending to acquire a new customer. If your CLTV is $100, for example, and it costs you $20 to acquire a new user, that’s a healthy margin. But if acquisition costs start climbing too close to your CLTV, it’s time to rethink your marketing strategy.
2. Focus on High-Value Users
Not all users are equal. By segmenting users based on their CLTV, you can focus your marketing efforts on acquiring and retaining the most valuable users. These users are more likely to stick around, spend more, and refer new customers to your app.
3. Justify Product Enhancements
If you have a solid understanding of your CLTV, you can justify spending money on product improvements that keep users engaged longer. By boosting customer retention, you directly impact their lifetime value and your bottom line.
4. Balance Retention vs. Acquisition
Many app developers make the mistake of focusing solely on acquiring new users, but retention can be just as, if not more, important. Improving retention rates not only boosts CLTV, but it also reduces the need for aggressive (and often costly) user acquisition campaigns.
Referrals, in particular, are one of the best ways to acquire high-quality users at a low cost. This is where Advato comes in. By making it incredibly easy to implement referral programs within your app, Advato helps you grow your user base and maximize the lifetime value of each user—all without breaking the bank.