Marketing

Apple Subscriptions Model – LTV Calculation

ltv calculation for Apple subscription models

Apple recently announced a new model is available in the app store and apps will no longer be sold for a $1 but will charge a monthly subscription instead. The subscription model is a middle ground between the premium model and the free2play model with in-app purchases. It doesn’t force users to pay upfront for apps they are not sure they are going to need long-term and on the other hand it lets users evenly share in the monetization instead of relaying on psychological models that exploit people’s weaknesses. This model still requires LTV calculation but it works a bit differently than with free2play (Or IAP models for non-games).

What’s the difference in LTV calculation

With the subscription model the amount paid every month is fixed.  This makes things simpler for us when it comes to LTV calculation. It also works in monthly intervals where churn requires an action. In other words, once you started it’s an opt-out model vs. opt-in in free2play / IAP. This means that we can look at churn as a static ratio. The formula is this one:

Screenshot 2016-07-03 16.25.44

Using an LTV calculator is easy

The calculator below can give you a feeling of how the LTV is affected by these two parameters. You can put in the numbers and get the result.

  • Monthly subscription fee – here you can put whatever value you configured in the app store
  • Monthly churn rate – this is the number of people canceling each month as a ratio of the number of people who started that month

 

UA aspects of subscription models

The main use cases of LTV calculations are in marketing and user acquisition. One thing to know is that in subscription models the retention is much longer compared to free2play. It’s common to see monthly subscriptions with a lifespan of 3-5 years whereas in free2play we usually calculate LTV for 180days or 365days. This also means that you would be able to run campaigns that only get to ROI after 6 months or even 12 months if you have the right funding resources.

 

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