PRODUCT

ANALYTICS
BASIC MONETIZATION
AND REVENUE METRICS

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INTRODUCTION
Monetization and revenue metrics are arguably the most crucial in
determining a product’s success. They are vital to understanding and
guiding your company's development and an important signal for investors
and buyers.

Financial metrics not only convey the total amount of money paid by the
users but also depict their spending and conversion patterns over time.
They offer valuable insights into how effectively the product is fulfilling the
users' needs and identifying areas for potential enhancement.

In this book, we want to present some of the most important monetization

and revenue metrics that will drive your game or app financial success.

Click to read more:

຤ Paying conversion
຤ Paying users and paying share
຤ ARPU
຤ ARPPU
຤ Cumulative ARPU
຤ LTV
຤ Social LTV

After reading this book, you’ll be able to:

⦿ Calculate the number of your paying users

⦿ Find ways to increase the number of purchases
⦿ Understand their willingness to pay
⦿ Determine how much money they spend on your product
over one week, month, and the entire engagement period

⦿ Distinguish between APU and ARPPU, and much more.

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In this book, you will find examples that will help you understand how
to use various metrics. Use them to practice real-life analytics in the
devtodev demo project and get an overall understanding of how analytics
platforms appear and operate.

If you already have a game or an app, you can integrate it with devtodev
and start working with your own data. This comprehensive solution will
provide you with valuable insights into every aspect of your product.

Sincerely yours, devtodev team

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PAYING CONVERSION
While discussing this or that project, we often use the term “conversion”.
Analysts analyzing a project always pay attention to this key indicator and
do their best to increase it.

Conversion is the percentage of users who have taken a desired action,

such as clicking the "Register" button on the landing page, clicking an
ad, or making a payment. Let's delve into the last case in more detail, as
it holds the utmost importance for a project. Typically, when we refer to
"conversion," we specifically mean paying conversion

Before we derive the formula, let’s talk about its key element — a cohort.
This metric is calculated for a cohort, which is a certain group of users
who have installed the app during a certain period.

So, paying conversion is the percentage of users who made payments

out of all users who installed your app or game.

Paying users
Paying conversion =
New users

Conversion rate is directly proportional to revenue. By increasing

conversion, you increase the number of users who make purchases,
which, in turn, increases the revenue.

Revenue = New users x Conversion x ARPPU

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Let’s see what happens when we increase the conversion rate by just 5%:

New users Conversion ARPPU Revenue

Before 1,000 10% $5 $500

After 1,000 15% $5 $750 (+250)

However, if the conversion rate increases because of the decrease of

the average payment or the product's price, the result may turn out to
be negative.

New users Conversion ARPPU Revenue

Before 1,000 10% $5 $500

After 1,000 15% $3 $450 (-50)

That is why you should keep an eye on other financial metrics like ARPU
when experimenting with the conversion rate. Discounted prices (like $3
vs $5 in the example above) don't always result in lower income, but it is
still necessary to control them.

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In addition to promotions and discounts, conversion can also be
influenced by:

⦿ Product design and its individual elements

⦿ Headlines
⦿ Texts
⦿ Marketing proposals
⦿ Simplicity of the interface
⦿ Time of the offers
⦿ CTAs
⦿ Feedback about the product, etc.

These points are individual for every project. What increases conversion
rate in one product may not affect it in another. However, you still need

to experiment to find out what works best for your app or game.

Best Approaches to Analyzing

Conversion in More Detail
1. Separating payment types
To gain a better understanding of user behavior, you need to calculate the
conversion rates of the first and recurring payments separately, rather
than calculating them for all payments together. In this case, recurring
payment conversion refers to the percentage of users who made more
than one payment during the analyzed period.

You can also divide the repeat payments by their number: 2nd, 3d, and
so on, and then you’ll be able to calculate the conversion rate for each
of them separately.

It's important to ensure that your users continue making purchases after
they made their first payment, because often the repeat and recurring
payments are responsible for the largest chunk of the revenue.

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2. Tracking time before
the first payment
It's also important to understand when exactly your users start paying –
immediately on the day of installation or some time later, when they get
the feel of the product.

After you get to know that, you can find certain patterns in user behavior,
affect them, and plan various marketing activities, increasing the
probability of making payments.

In addition, if your game or app includes levels, it's worth considering

the timing of the first (or any other) payment within their context.
This division can be relevant for games with levels, as well as various
educational or fitness apps where the user's progress can be segmented
into separate steps.

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3. Using cohort analysis to
explore metrics by days
Conversion rate is calculated for cohorts, and you can use this aspect
to track its changes over time for a specific group of users, as well as
to compare different cohorts with each

Days from Install

Date Cohort Size
1 2 3 4 5 6 7

25.01.2023 977 16% 13% 11% 5% 3% 1% 2%

26.01.2023 946 17% 13% 10% 6% 2% 2%

27.01.2023 945 17% 14% 11% 5% 2%

28.01.2023 1029 18% 14% 9% 6%

29.01.2023 953 18% 13% 10%

30.01.2023 995 20% 13%

31.01.2023 972 17%

Such analysis is relevant for conducting experiments – it's possible to

estimate how the changes affect conversion in cohorts that were formed
before and after these changes.

There's one more metric, which is similar to conversion but has a different
meaning – Paying share.

Paying users
Paying share =
Active users

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This metric differs from conversion by its denominator, which is the entire
active audience. It is not tied to the installation date, nor does it require
cohort analysis.

In addition to the fact that the сonversion rate affects the app’s revenue,
it's also an indicator of user's interest. Therefore, it is useful to study
their behavior and needs in order to provide relevant offers, develop and
improve the product.

Keep in mind: while tracking how all these changes affect the
percentage of paying users, you should not forget to check other
equally important financial metrics.

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PAYING USERS
The goal of creating games and apps is not only to provide joy,
engagement, or solve user issues, but also to generate revenue. That's
why it's crucial to closely monitor the specific individuals who contribute
financially, referred to as paying or premium users. In the devtodev
analytics platform, they are referred to as "Paying users," and the
percentage they represent of all users is known as the "Paying share." As
a general rule, the higher these two metrics are, the greater your income
and, consequently, the more successful your project.

Paying users not only generate income for you but also enhance your
metrics. For instance, their retention rate is typically higher compared to
that of free users. When someone has invested their hard-earned money
into your project, they are less likely to abandon it even if they come
across another appealing app or game. They will strive to extract maximum
value from their investment, seeking pleasure, and excitement.

How to Boost the Number of Paying Users:

1. Incorporate relevant content into your project to sustain the interest

of both newly registered and experienced users.
2. Segment your user base, conduct pricing experiments, and identify
optimal price points.
3. Provide discounts, run sales, and promotions. These tactics operate
similarly to those employed in offline retail.

New Paying Users

New paying users are a segment of users that requires your special
attention because they have already taken the most significant step by
making their first purchase.

If you aim to increase your earnings, you need to encourage them further
and transform them from minnows into dolphins or even whales. This
task is not easy as it entails extensive analytics. You must comprehend

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their motivations, preferences, and the factors that led them to make a
purchase. Subsequently, you should devise distinct marketing strategies
tailored to different user groups, implement them, reanalyze the results,
and continually strive for improvement.

Make sure to turn your new users into people who make repeat or even
recurring purchases because they are the main source of revenue.

Are you Sure that your Paying Audience

is Growing?
To ensure the growth of your premium user base, you can utilize another
metric called the "paying share." This metric represents the percentage of
paying users among all users.

Paying share formula:

Paying users
Paying share =
Active users

The paying share is usually quite small. In f2p games, for example, it is just
around 1%. It means that 99% of users do not pay at all and developers
have to apply other monetization strategies.

You have to keep in mind that the increase in the number of paying users
does not automatically lead to an increase in your revenue. In case the
number of users is growing but your average check is shrinking, you run
the risk of losing your money rather than earning. That’s why you need to
analyze ARPPU (average revenue per paying user) along with the paying
users and paying share metrics.

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Let’s take a look at the following examples:

Paying users ARPPU Revenue

Before 1,000 $4 $4,000

After 1,200 $3 $3,000

Revenue = ARPPU x Paying users

The number of paying users became bigger but the ARPPU dropped and
your income dropped too.

Revenue = Active users x Paying share x ARPPU

Active users Paying share ARPPU Revenue

Before 5,000 $30 $2 $4,000

After 5,000 $20 $4 $3,600

In this situation, the paying share shrunk but the ARPPU increased so did
your revenue.

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The paying users and paying share metrics work best if you analyze them
together with another indicator. The paying share, for example, is best
to be analyzed together with the number of new users. If the paying share
is decreasing while the audience is growing, then your new users are not
your target audience and you have to stop buying traffic from the source
you are currently using.

To retain your paying users within your app or game and encourage them
to increase their spending, it is essential to provide them with a smooth
and comfortable user experience (UX). To achieve this, you should employ
user segmentation techniques to divide them into smaller groups.

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ARPU
ARPU, or average revenue per user, is one of the most popular and most
important monetization metrics in product analytics that you can use to
evaluate your project performance.

In general, ARPU is the average amount of income that is produced by one

active user over a specific period of time. Usually, partners and investors
take a particular interest in this metric, and the devtodev team will try to
clarify its specifics and ways you can use it to analyze your games.

To calculate the ARPU, you need to divide the revenue for the selected
time period by the active audience:

Revenue
ARPU =
Active users

For example, if your audience is 5,000 users and the app’s revenue is
$3,000, then each user brings approximately $0.6 to the project:

$3,000
ARPU = = $0.6
5,000

Also, quite often you may see the ARPDAU metric. It is the same as ARPU
but it is calculated for a single day: the revenue for one day is divided by
the number of active users on that day — daily active users, or DAU.

You can also calculate ARPMAU, or the average revenue per monthly
active users, which divides the monthly revenue by the product’s MAU.

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ARPU is one of the key indicators that shows the project’s monetization
performance that in turn directly influences income. You can calculate it
using the following formula:

Revenue = ARPU x Active users

So the higher your ARPU is, the larger your product’s revenue. Also, ARPU
is a great metric to assess the effect of changes that you implemented in
your project. It takes into account both paying and free users and is based
on two additional parameters, which makes it much easier to analyze:

ARPU = ARPPU x Paying share

Here, ARPPU is an average revenue per paying user, while paying share is
the percentage of paying users within the entire audience.

Let's see how it works.

For example, 1,000 users opened the app during a selected time
period and 100 of them made purchases for a total of $500.
Therefore, your average user produces $0.5:
ARPU = $500/1,000 = $0.5
Out of the entire audience, 100 users made purchases:
paying share = 1,000 / 100 = 10%
The average check for a paying user is $5:
ARPPU = $500/100 = $5
By combining paying share and ARPPU, you can see that:
ARPU = 10% * $5 = $0.5

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Where you can Use ARPU
Pricing experiments

For example, your product costs $15, you had revenue of $1,500 and 1,500
users. Then you raised the price up to $17. As a result, you saw a decrease
in the user count down to 1,200 and the revenue also fell to $1,400.

How do you know if the price increase was effective and whether the
decline in revenue was related to it?

To answer these questions, you need to take a look at the ARPU values:

ARPU before = $1,500/1,500 = $1.00

ARPU after = $1,400/1,200 = $1.17

As you can see, it actually wasn’t a bad experiment at all. If you can bring
back the number of users that you had before raising the prices, the
revenue will increase:

$1.17 * 1,500 = $1,755, versus $1,500 before you increased the price.

Traffic analysis

Let’s say you have a product that costs $2. Your monthly audience is 1,000
users and they bring in $400 in revenue: ARPU = $400/1,000 = $0.4

Then you drive more traffic and the number of users goes up to 1,500
while the revenue grows to $500. It seems to be a good thing, but if you
calculate ARPU, you'll see that it had actually decreased:
ARPU = $500 / 1,500 = $0.3

As a result, the average user now produces less revenue than before.
Probably, because purchased traffic wasn’t targeted enough.

Also, you can use this to compare different traffic channels. The most
important thing to keep in mind is that the higher the ARPU, the more
income you will get.

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User segments comparison

Let’s imagine that there are several types of players in your product
and they all behave differently and pay differently. In addition to that,
the number of users in each of those segments varies widely. You can
use ARPU to compare which of these segments is the most loyal and
profitable:

Segment Number of users Revenue ARPU

Installed app 1 day ago 95 $1,988 $20.9

Installed app 2-7 days ago 43 $703 $16.3

Installed app 8-30 days ago 203 $3,715 $18.3

Installed app 1-3 months ago 175 $4,254 $24.3

You can see that there is a majority of loyal users who have been using
the product for some time and on average pay the highest amount for
your game.

However, despite the fact that there are far fewer new users, they also
generate decent revenue compared to the rest of the segments.

By focusing on these groups of users and increasing the number of people

in them (in particular, new users), you can significantly increase your total
product revenue.

How to Increase ARPU

First of all, you need to pay attention to the two metrics that are part of
the ARPU formula: the paying share and ARPPU. The more users you can
convert to making purchases, the higher your ARPU and the resulting
revenue will be. In order to improve ARPPU, you can conduct pricing
experiments or increase the value of your product to the user.

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You can also focus on driving repeat purchases, because the more
purchases a user makes, the larger their next purchase amount will be.

It is also important to keep in mind that if you simply increase the price,
you may experience growth in ARPPU, but it does not guarantee that your
overall income will increase as well. The percentage of paying users may
decline sharply, and the profit from paying users might not be sufficient to
compensate for the decrease in the number of purchases.

Now you know how to measure the success of your product, user loyalty,
how to compare different traffic sources, and evaluate your experiments.

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ARPPU
This part of the book will focus on the metric that describes a reaction
of paying users to a project's value, which at the same time is a very
important and useful monetization metric. This metric is called ARPPU, or
the average revenue per paying user, where a paying user is a user who
made at least one purchase for a certain time period.

ARPPU is calculated as revenue for a selected time period divided by the

number of users who made a purchase (paying users):

Revenue
ARPPU =
Paying users

While calculating ARPPU, it's important to be aware of the period

considered. During the month, users can make second, third, etc.
purchases, but monthly ARPPU won't be equal to the sum of daily ARPPUs,
as the numerator, or the number of paying users per month, will be the
number of unique users who paid this month, and not the total sum of
paying users per day.

Unlike ARPU from the previous chapter, this metric doesn't take into
account non-paying users. Only paying users are counted. It means
that ARPPU will always be bigger or equal to ARPU. In fact, they would
be equal only if all your active users made a purchase. Usually, ARPPU
far exceeds ARPU.

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Let’s compare these two metrics.

Assume that 1,000 out of 5,000 active users made certain in-app purchases
worth $3,000. Based on this data you can calculate ARPU and ARPPU:

ARPU = $3,000/5,000 = $0.6

— this is an average sum that an active user pays
ARPPU = $3,000/1,000 = $3
— this is an average sum that a paying user pays

ARPPU, in turn, is directly related to the revenue.

Revenue = ARPPU x Paying users

In other words, by increasing ARPPU or the number of paying users, you can
increase your revenue.

Nevertheless, when increasing ARPPU, it is crucial to monitor other

metrics closely, as this upward trend may be accompanied by a decline in
other key indicators. Let's explore the reasons behind this phenomenon.

Let's find out why it can happen.

For example, 100 users out of 1,000 made purchases worth $2.

In this case:

Revenue = $200
Paying users = 100
Paying share
(the percentage of users who made a payment) = 100/1,000 = 10%

ARPU = $200/1,000 = $0.2

ARPPU = $200/100 = $2

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The easiest way to increase ARPPU is to raise prices.
Let's see how this can turn out.

Now the product costs $10 instead of $2, but only 20 users instead of 100
can afford it. The metrics will change as follows:

Revenue = $200
Paying users = 20
Paying share = 20/1,000 = 2%
ARPU = $200/1,000 = $0.2
ARPPU = $200/20 = $10

As you can see, the paying share has dropped from 10% to 2%. At the same
time, ARPPU increased from $2 to $10, which did not affect the revenue
and ARPU. These metrics remained unchanged.

What if there were fewer paying users? For example, 10 instead of 20.

Revenue = $100
Paying users = 10
Paying share = 10/1,000 = 1%
ARPU = $100/1,000 = $0.1
ARPPU = $100/10 = $10

It’s clear that the revenue, paying share and ARPU decreased significantly.
However, ARPPU still remains the same as before — $10.

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Here is a comparative table of these 3 cases:

Metric Source data Option 1 Option 2

Active users 1,000 1,000 1,000

Paying users 100 20 10

Price $2 $10 $10

Revenue $200 $200 $100

Paying share 10% 2% 1%

ARPU $0.2 $0.2 $0.1

ARPPU $2 $10 $10

In this regard, you need to ask yourself: why should you calculate and
control ARPPU and how can you use this metric?

Where you can Use ARPPU

ARPPU is extremely good at describing recurring payments, as they
do not increase the amount of paying users but increase your revenue.
Perhaps, this is the most proper way to increase ARPPU without
compromising other metrics.

Let's look at an example.

10 users out of 100 made purchases, each of them spent $2.
Revenue = $20, paying share = 10%, ARPU = $0.2, ARPPU = $2.
Then 3 users out of these 10 again paid $3.

Here you have:

Revenue = $29, paying share = 10%, ARPU = $0.3, ARPPU = $3.
Thus, recurring payments lead to an increase in all the major metrics.

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By the way, according to a devtodev's research made on a number of
online games, the more purchases a user makes, the greater their next
payment amount will be.

There's another similar metric to ARPPU — average check, or revenue

per transaction. Although it has a slightly different meaning and another
way of calculation, it can also be used only for paying users to assess
their payments.

Summarizing all the above, the average check is the average cost of
the transaction, an arithmetic average of all the payments, excluding
the number of users who made these payments.

Revenue
Average check =
Number of transactions

It’s different from ARPPU: if one paying user makes a repeated payment,
then the denominator in ARPPU — the number of paying users — will not
change, but the number of transactions will increase, and it will affect the
average check.

Let's compare ARPPU and average check.

For example, 10 users made purchases, each worth $5. Then two of
them made a second purchase, each of them worth $3.
In this case, ARPPU will equal to (10 * $5 + 2 * $3)/10 = $5.6.

To calculate the average check, you should divide the total revenue not by
the number of paying users but by the number of payments made by them:
(10 * $5 + 2 * $3) / 12 = $4.7.

Compare it with $550 — the ARPPU of Game of War — a very successful

project of its time.

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ARPPU is another indicator of user loyalty which at the same time
allows you to evaluate the attitude of your users towards the prices of the
product. By the way, you can read about other user loyalty metrics here.

ARPPU is also highly sensitive to their changes. This metric shows the
satisfaction of users with your game because the higher it is, the more
they will eventually pay.

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CUMULATIVE ARPU
What is cumulative ARPU, how does it differ from the regular one, how to
calculate and use it?

In this chapter, we'll take a look at a metric that will be very useful for
estimating the traffic quality and choosing the optimal CPI (cost per
install). It's cumulative ARPU.

This metric is calculated just the same as the regular ARPU: you need to
divide the revenue by the audience. However, it has one very important
feature which distinguishes it from the regular ARPU and makes it useful
for analyzing the traffic. Cumulative ARPU is calculated not for a whole
audience but for a specific cohort of users. This cohort is made up of
users who installed the app during a certain period of time (it's most
convenient to use daily or monthly cohorts).

For a cohort, this metric increases daily, that's why it's called “cumulative”.

How does it Happen?

Let's say you decided to analyze users who installed the app on
01/01/2022, e.g. 1,000 people. On their first day, they made certain
purchases and total revenue was $800.

Day 1 cohort’s ARPU is $800/1,000 = $0.8.

You can use the following table to keep the records:

Cohort size is 1,000

Day from install

0 1 2 3 4 5 6 7 8 8 10 11 12 13 14

Revenue $800

ARPDAU $0.8

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The next day, some of the same users made purchases worth $500. No
matter how many of them returned to the project and how many of them
made purchases, the size of the cohort that you divide the revenue by is
always 1,000 users.
You can already calculate the cumulative ARPU. It will be a sum of the day
0 (day of install) and day 1 ARPU.

Day from install

0 1 2 3 4 5 6 7 8 8 10 11 12 13 14

Revenue $800 $500

ARPDAU $0.8 $0.5

Cumulative
ARPU

Calculate the remaining days in the same way.

Day from install

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Revenue $800 $500 $350 $220 $150 $100 $85 $75 $75 $70 $45 $30 $20 $15 $10

ARPDAU $0.80 $0.5 $0.4 $0.2 $0.2 $0.1 $0.1 $0.1 $0.1 $0.1 $0.0 $0.0 $0.0 $0.0 $0.0

Cumulative
$0.80 $1.30 $1.65 $1.87 $2.02 $2.12 $2.21 $2.28 $2.35 $2.41 $2.35
ARPU

Here's the final formula which calculates the cumulative ARPU:

Cumulative ARPU Revenue (of a selected cohort for N days)

=
for N days Number of users (within the selected cohort)

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The day N cumulative ARPU is equal to the revenue made by this cohort
for N days and divided by the number of users in this cohort.

A typical chart of the cumulative ARPU looks like this:

This metric can only grow with time, as the more time users spend in a
project, the more they pay. If at some point they stop paying or using the
product at all, then after reaching a certain level this chart will become a
horizontal line.

Why Cumulative ARPU So Interesting?

First of all, it allows you to find out which revenue a user will bring on day
7, or day 30, or even 3 months after the date of install. In other words,
you'll be able to predict when and how much money a new user will bring.

And it leads to its second advantage. This metric is really useful for
estimating traffic quality and its payback period, as it's important to know
when users start to bring more money than you've spent acquiring them.
It is the moment when the cumulative ARPU becomes equal to CPI (cost
per install).

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If you know the cumulative ARPU of a cohort for, let's say, the 365th
day (or any other subsequent day), it's already possible to talk about the
average revenue per user during the project's lifetime — this metric is
called lifetime value, LTV or CLV).

And here's one more advantage of this metric: due to the peculiarities of
its calculation, cumulative ARPU allows you to compare different cohorts,
which is especially convenient when you make any changes
to the product.

In this case, you can compare the cumulative ARPU for these two cohorts
over time: those who installed the app before the changes were made
versus those users who installed the app after the changes to see how
the changes affected payments.

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Thus, calculating cumulative ARPU is a big step towards cohort analysis,
a good indicator of the traffic's quality that you’re purchasing, and a useful
metric for estimating the nature of user payments and their profitability
for the project.

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LTV
This chapter is about one of the most important financial metrics, which
allows you to optimize the cost of user acquisition campaigns, to plan
revenue for a long time ahead, to evaluate the effectiveness of acquisition
channels, to emphasize the most financially attractive user segments, and
many other things (read our free ebook on LTV).

Lifetime value (LTV), or customer lifetime value (CLV), is the average

amount of money from one user during the entire engagement period.

Arguably, no other metric can be compared to the lifetime value in terms

of the number of ways to calculate it and its importance in assessing the
financial performance of an app.

In fact, LTV is a cumulative ARPU that has reached a certain stable value.
In other words, LTV is the average revenue gradually brought to the app by
a single user.

The LTV chart looks the same as the chart of cumulative ARPU, it is also
calculated for cohorts, and its chart and value both increase in time.

Notably, the chart grows rather quickly at the beginning and then its
growth slows down and completely stops after a while.

Such a trend is associated with the churn of users in the game or app —
initially, there are a lot of people in the cohort and they are actively making
purchases. Then, most of the users leave the project and revenue growth
decreases by their quitting.

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LTV affects revenue in the direct ratio, which is evident since the more
money one user brings to the project, the higher the total revenue is.

Revenue = Lifetime value x Active users

When working with LTV, it is worth analyzing it for different segments,

as all the users behave and pay differently. For example, segments can
be based on a country, a traffic source, or can be action-based, e.g.
a segment of the users who completed the tutorial. LTV of all these
segments will most likely vary.

Why Do You Need LTV?

Evaluating the quality of traffic is one of the most frequent uses of this
metric. LTV provides insight into the number of payments made by one
user during their entire life in a project. Therefore, when purchasing traffic,
it should be considered that the customer acquisition cost (CAC) must be
less than its LTV, otherwise purchasing such traffic will only inflict losses.

Specifically, by calculating the lifetime value it is possible to find out the

exact time when a user pays back the money spent on their acquisition. It
will happen when LTV becomes equal to CAC:

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However, if the lines cross, let’s say, after 2 years of the user's presence
in the project, it is also worth evaluating if buying such traffic makes
any sense.

You may regard LTV as the upper limit of the cost of purchased traffic,
but still, it is quite risky to buy it at a price that’s equal to the lifetime
value itself.

That’s why the recommendation of holding on to the following ratio is

widely spread:

Lifetime value > 3 x CAC

If it's achieved, it indicates that the product is viable and successful.

The revenue forecast is another way to utilize LTV, particularly when

estimating this metric for different segments. In this scenario, if you have
knowledge of the audience composition and the lifetime value of each
segment, it becomes feasible to calculate the revenue that each segment
can generate over a specific time period.

Let’s assume that you know the LTV of the users who were acquired for
money and organically, therefore you can review how traffic experiments
affect the revenue: what may happen if you increase the number of
organic installs by launching the app in a new country, or how the total
revenue will change if you reduce paid traffic.

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 Metric Current situation Variant 1 Variant 2

Paid traffic 1,000 1,000 500

Organic traffic 500 700 500

Payers LTV $24.5 $24.5 $24.5

Organic LTV $ 29.1 $29.1 $29.1

Revenue in n months $39,050 $44,870 (+15%) $26,800 (-31%)

How to Increase LTV?

It is highly unlikely that you can affect the lifetime value directly since it is
a complex metric. So, in order to maximize it, it's worth paying attention
to the indicators that influence it the most — the lifetime, which shows
how much time a user lives in the project, and the ARPU, which shows how
much they pay.

On the other hand, a user’s lifetime in a project is affected by the

retention, and ARPU is made up of the proportion of paying users
and their average check.

Lifetime value > Lifetime x ARPU

Lifetime can be calculated as an integral of retention, and ARPU — as a

product of the paying share and ARPPU.

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As a result, you can distinguish five metrics that influence LTV:
⦿ Lifetime
⦿ ARPU
⦿ Retention rate
⦿ Paying share
⦿ ARPPU

They are exactly those levers of influence over the lifetime value. It is
possible to increase LTV by raising these metrics.

How to Calculate Lifetime Value?

There are a great number of methods for calculating LTV and that is due
to plenty of factors, which we’ll discuss below.

In theory, in order to calculate LTV, you need to take a cohort of users

who installed the app during a certain period of time and observe the way
they make their purchases during a month. Hereafter, when there are no
more users left in the cohort due to inevitable churn, all the revenue they
brought should be divided by the number of users in the cohort.

However, this method has an obvious problem — it involves spending

pretty much time on waiting since users can keep engaging with the
product for half a year, a year, or even longer. Usually, no one can waste
so much time on calculating LTV.

Moreover, a lot of changes are likely to occur inside the app in this interval
of time, and new users may behave differently from the users of the cohort
you are observing. This means that their lifetime value has all the chances
to change as well.

Thus the whole complexity of the calculation is based on the fact that it
takes a small amount of data that is available for the short period of time
that the user spent in the app.

That’s why all the calculation methods that are used in real life are not
quite accurate and have their advantages and disadvantages (by the way,
devtodev uses ML for predicting LTV with 95% of accuracy).

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Nevertheless, let’s look at several approaches.
Let's start with the formula mentioned above:

Lifetime value = Lifetime x ARPU

It’s not perfect. Firstly, lifetime itself does not have a decisive and exact
method of count and, the same as lifetime value is calculated on the basis
of a small amount of past data.

Secondly, whilst ARPU is also constantly changing, the formula contains

only one conservative value.

Another way of LTV calculation is by using the cumulative ARPU. If

you know the cumulative ARPU values for a certain period of time, for
example, for the 1st, 7th, 14th, 30th days, then by using mathematical
approximation, you can complete the curve for a longer period, the limit of
which will exactly be the required LTV.

These are by no means all methods of calculating lifetime value and

probably they are not the simplest ones, but this is an indicator that still
needs to be estimated, as it combines the most important metrics, takes
into account both paying and free users, and is regarded to be one of the
most important financial indicators.

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When you know the LTV of your project, you can understand which
customer cohort is of the greatest value for you, how fast the cost of their
acquisition will be paid back, how much revenue new users will bring you
in six months or in a year, how this revenue will change if you increase
retention, and so on. Now you can see that lifetime value inspires you to
work on the most important financial and customer metrics and plan your
business for a longer time.

You can find all information about LTV in our FREE BOOK.

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SOCIAL LTV
Social lifetime value (social LTV) is a rather rare metric that cannot be
measured using conventional analytical systems. It is an alloy of two other
metrics — lifetime value and k-factor. What do they measure and how are
they combined?

Components of Social Lifetime Value

LTV is one of the most important financial metrics that shows the
amount of money you get from an average user over the entire period of
engagement. For example, a user spends 60 days in your game (this is
their lifetime) and a total of $29.9 (this is their lifetime value).

Just as with the traditional LTV, this metric is not calculated on the basis
of actual data since you cannot monitor each and every user and wait
for them to leave the project. Therefore, you need to use less accurate
calculation methods.

K-factor is the virality indicator that you can use to track a project's
popularity. This is the number of people who installed it on the
recommendation of a person who already uses the project. The higher
the k-factor, the better: if it equals 70, it means that 100 users invite 70
new people on average, if it is 1.2, then they invite 120 people and, thanks
to this, this project fully and absolutely free replaces churned users. The
k-factor value cannot fall below 0; and if it equals 0, it means that the
project does not have any virality.

It is difficult to assess this indicator since we usually give either word-

of-mouth recommendations or use personal messages in social media
or messengers.

Due to difficulties in evaluating LTV and k-factor, analysts usually use the
method that they consider most suitable for a particular project and later
they calculate the social lifetime value based on these data.

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Double User Value
A paying user is extremely valuable, but if they also invite a friend, then
their value increases greatly because this friend can also start making
purchases. Social LTV is this new value that takes into account both the
LTV of a user and the value of the invited friend.

Calculation formula:

Social lifetime value = Lifetime value х (1 + k-factor)

For example, if:

Lifetime value = $29.9
K-factor = 0.6

Then:
Social lifetime value = 29.9 * (1+0.6) = 47.84.

It’s clear that the true value of the user is much higher than just their LTV.

Please note that for Social LTV calculation you can only consider the
first-line users. Thus, unlike k-factor, you do not take into account those
people who come to the project on the recommendation of a person who
themselves entered it on a recommendation.

This is an unconventional metric, and although it is a convenient

combination of LTV and k-factor, it is rarely used by analysts and
developers.

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TAKE AWAY POINTS
In this book we’ve covered some of the most important monetization and
revenue metrics, that will give you the whole picture of how your project
earns money, who generates it and when they do this.

If you are an analyst or run your own project, then after reading this book,
you can answer the wide range of essential questions, such as:

⦿ What is the conversion rate of the project?

⦿ When do the users make their first purchase?
⦿ Was the latest price increase beneficial for the overall
revenue or not?
⦿ Is this traffic channel better than that one? Is it even profitable?
⦿ How long does it take to hit breakeven (for an investor)?
⦿ What amount of time does it take to recover the cost of
user acquisition?

The companies that have not yet started their analytics journey but
already are trying to figure out where to begin, can take a look at
devtodev’s free demo project that will allow you to visualize what an
analytical system is and to get hands-on practical experience.

On the devtodev website, you can find two more books of this series — one
is about acquisition metrics and another about retention metrics.

We hope this book has been beneficial to you and you answered many
if not all your questions about monetization and revenue metrics. If you
have any questions, feel free to drop us a line or contact us via Facebook.

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