LTV: a metric that is central to marketing decisioning. While it is an important metric to decide further budget allocations, it’s important to understand that there is no one single objective way to define this. 

In this short episode, we outline the different ways in which LTV can be defined – there is no one single correct way, and why it’s important to be clear about exactly what definition we’re talking about. 

With a lot of marketing decisions made based on LTVs and CPIs, something that many marketers forget is that LTV is a made up number. This is primarily because the concept of lifetime in LTV is never clearly defined, it’s always ambiguous. While obviously LTV can be an actual number right? So it can be your actual D30, D90 etc.. It can also be a projected estimate. What I’m underscoring is that there is a lot of subjectivity in how LTV is defined. And this is oftentimes a result of internal corporate political dynamics. This is, especially in companies that manage portfolios of multiple apps. The way they use LTV to make decisions within budgets or other resourcing can be very different.

I’ve actually seen companies where different teams calculated LTVs very differently. And this resulted in significant political turf battles, just because there are scarce budgets for marketing and scarce resources for analytics, engineering etc. So a lot of these decisions have to be made based on LTV and ROAS.

A lot of the subjectivity and contentiousness comes on the basis of a few key questions. And these are some examples of the questions where there can be subjectivity involved.  

One could be: how do we compare LTV or payback period for an app that has front loaded monetization versus one with longtail monetization? You can’t clearly calculate LTVs for the same day. 

Should we use a longer payback period if an app has very strong, longtail retention? And if most of its revenues come after year one?

What statistical models should we use to calculate LTV? Should we use conservative estimates or aggressive estimates? I’ve often seen two different analysts come up with very different estimates for what LTVs could be.

The fourth is, should new and unproven games get bigger, launch budgets? I’ve seen this happen. Just because there’s somebody in charge of a new game that has significant political clout within the company, they are able to get larger launch budgets. 

Should we allocate a disproportionate budget for a game that is wildly profitable from its legacy users? It’s got a lot of users that are making a lot of revenue. But it’s new user LTV is actually very low. Should you actually give it more budgets? You can make a case for not giving it any budget, because new users are not but getting you any revenue. You can also make a case for giving it a lot of budget because it is widely profitable. Should we have a very liberal LTV model if you have a viral game? There’s no one answer to that. 

Would you attribute a lot of the organic revenue to paid? You can basically argue one way or the other to that question, but should we optimize for monthly profitability, quarterly profitability, or long term profitability? There’s no one single answer to that question. 

A lot of these questions have so much subjectivity involved. In an ideal world, a lot of these decisions will be made strategically with the goal of maximizing a company’s long term growth. But the reality tends to be far more complex and messy. Oftentimes, the LTV calculation that prevails, can come down to who has more power in a situation, which could be political power in a corporate setting. 

Oftentimes, this can also just come down to who’s more articulate, or who has more allies and lobbying for some of these resources and making a case for themselves. All of this is to say that while LTV has utility as a marketing metric, in reality, decision making is never as clear cut as a financial model can make it to be.

A REQUEST BEFORE YOU GO

I have a very important favor to ask, which as those of you who know me know I don’t do often. If you get any pleasure or inspiration from this episode, could you PLEASE leave a review on your favorite podcasting platform – be it iTunes, Overcast, Spotify or wherever you get your podcast fix. This podcast is very much a labor of love – and each episode takes many many hours to put together. When you write a review, it will not only be a great deal of encouragement to us, but it will also support getting the word out about the Mobile User Acquisition Show.

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Thank you – and I look forward to seeing you with the next episode!