Too often, companies forget to focus on engaging their customers, brushing over the fact that a customer’s behaviour and purchases are linked to the quality of the user experience (and a user’s lifetime value!). What frequently results is stagnation and a direct negative effect on app growth.
In today’s competitive and fast-moving app marketplace, it is all the more important to understand the relationship between customer engagement and a customer’s value. After all, this is what will influence the long-term success of your app business.
So how do we pick apart this puzzle? A good place to start is the realisation that customer engagement can be measured with Lifetime Value (LTV); the more customers purchase and interact on an app, the more engaged they are. So how does higher LTV (and therefore engagement) affect your mobile brand?
In our experience, it results in a butterfly effect of positive reactions: a healthy level of engagement ensures mobile customers remain loyal, and loyal satisfied customers make more frequent purchases while being more likely to recommend the app to others.
Engagement is critical to your app’s success. But before we go down the road of examining how growing LTV can help your business succeed, we need to understand exactly what LTV is, how it’s found, and how it can be increased.
What is Lifetime Value?
In marketing parlance, Lifetime Value (LTV) is a measure of the revenue that a business will earn from a long-term relationship with a customer. In a nutshell, the higher your LTV, the faster your business grows.
Mathematically speaking, LTV is the:
“Average Transaction Value” * “Number of Transactions in a Retention Time Period” * Retention Time Period.
For app businesses whose success or failure is reliant on the relationship that the customer has with the brand, LTV is a vital metric. It spares them from having to invest in repeat Customer Acquisition Costs (CAC) to expand their customer base, and gives them an opportunity to examine strategic decisions with more depth.
So now that you have your LTV, the next step is to uncover how to use it to grow and optimise your business. The key is to combine it with the Cost of Customer Acquisition (CAC) to unlock its full potential as the LTV:CAC ratio.
LTV:CAC — Your New North Star Metric
The Customer Lifetime Value to Cost of Customer Acquisition (LTV:CAC) ratio aims to measure the relationship between the lifetime value of a customer and the cost of acquiring that customer.
In an ideal world, a customer’s LTV should be higher while CAC should be lower. This is because the business would otherwise be continuously spending on acquiring new customers which are ineffectively retained or engaged. This could stagnate profits and is unsustainable in the long term.
App businesses should prioritise maximising LTV while minimising CAC. This is where Customer Engagement can come into play as an ace over your competitors.
3 Ways Customer Engagement Influences Lifetime Value
Customer engagement can be defined as the interactions that the customer has with the product or service. Consecutive positive customer experiences can make the customer loyal to the brand thereby increasing their LTV.
Here are a few key examples of how customer engagement can influence LTV:
1. Engaged Customers Spend 5X More
According to studies, engaged consumers buy 90% more frequently, spend 60% more per transaction, and are five times more likely to indicate that they would remain loyal to their current service (Source). But why are customers so much more likely to make purchases when engaged?
There are two reasons behind engaged customers making more repeat purchases.
Firstly, they are already aware of the brand and how it functions. They also possess first-hand experience of how the brand interacts with its customers. As a result, they stay with the same brand as long as it delivers on its promise; this spares customers from the chore of identifying a worthwhile replacement for their regular purchases.
Secondly, most consumer brands have formulated compelling loyalty programs, messaging systems, and personalised communication that keep them relevant and visible to the customer. This ensures that the customer is not given an opportunity to consider another brand. Subsequently, this leads to incremental purchases from the same brand for new products that the customer may not have previously bought.
2. Customer Experience is a Key Differentiator
Studies conducted by PwC and other think tanks have found that millennial customers regard customer experience as a critical differentiator that surpasses price and product. Furthermore, they are willing to pay a premium to a brand that offers a superior customer experience. Since customer experience is a subset of customer engagement strategy, the influence it has on LTV is crucial.
3. Engaged Customers bring in Referral Customers
There is a unique trait that almost all engaged customers share across all industries and demographics. They refer new customers from their personal circle. Additionally, business referrals are rated as the second-highest source of quality leads (Forbes).
As referral leads cost almost nothing to interact with and convert, they are extremely beneficial for businesses.
How can your Mobile Brand Improve its LTV:CAC Ratio
The key to improving LTV:CAC ratio is through maximising customer engagement rates. Unfortunately, there is no silver bullet that can improve customer engagement overnight. An intelligent tool is required to understand user behavior, orchestrate customer journeys, and personalise them accordingly.
The insight-led engagement framework below is a growth flywheel that is aimed at helping consumer brands improve their LTV:CAC ratio. These frameworks go beyond the known precincts of personalising, engaging, and retaining customer experiences. It enables businesses to take a data-driven approach to understand what maximises customer engagement, why customer churn changes, and how that churn can be minimised.
Achieving Mobile App Growth Through User Engagement
Integrating a measure of engagement such as LTV into your growth framework is critical. This can be achieved through the development of UX features that promote meaningful user interaction. Engaged consumers increase app growth: they are more likely to make purchases, bring in referral customers, and be more satisfied with your mobile app’s services. Through a comprehensive evaluation of how user engagement can be improved on your mobile platform, and by subsequently taking relevant action, you can use consumer engagement to drive app success.