+3 votes
by (1.6k points)

3 Answers

+3 votes

Retention has a massive impact on user acquisition performance -- retention is the fundamental measure of a cohort's engagement, meaning you can't really have stable / sustainable monetization without it.

Some people believe that LTV and retention are independent product measures, but LTV is actually a function of retention: the "bowed" shape that many LTV curves take is the result of cohort users churning out of the product (as users churn out, there are fewer to contribute revenue, and since an LTV curve measures cumulative revenue of the cohort, the LTV curve's slope decreases over time and it takes the logarithmic shape). In an article I wrote called Visualizing the dynamic between LTV and Retention, I walk through the relationship between revenue and LTV with some code samples.

I have written pretty extensively on this subject at Mobile Dev Memo; some relevant articles:

by (8.4k points)
+1 vote

Retention is one of the crucial factors which affect User Acquisition (UA) performance directly.

While some app publishers are focussed on scaling UA, most of the acquired users are gone soon due to low retention rates. Retention and UA are not replacements of each other. They are complementary.

Life Time Value (LTV) is dependent upon the retention to a great extent. Opportunity to monetise better will be high when you have good retention rates. With low retention, the LTV also takes a hit.

 

      LTV > CPI      

 

While it’s a well-known fact that LTV has to be greater than UA Cost, many often ignore the fact that it’s the other way around too. You can’t scale UA if the LTV is too low. This is because CPIs go up with the scale and with time. If the LTV doesn’t support UA, it becomes tough to even sustain the existing UA levels in the long run.

 

What happens when an app has low retention rates?

  • DAUs fall quickly as there are very few users left. Lower DAUs result in lower monetization.

  • Entire funnel of late retention takes a hit as there will be a lower number of users, to begin with.

  • We have to opt for an aggressive early monetization strategy. This will affect the retention further like a vicious circle.

  • There will be a restriction on UA to acquire only early monetizing players to make the campaigns profitable.

  • Payback period becomes shorter. Due to this, we can't bid higher to scale UA.

 

Let’s take a look at the below example:

Here are the Inorganic LTV values of App A & B over a period of time.

Assumptions:

  • Inorganics constitute the majority of app monetization

  • Apps A & B belong to the same category

LTV of two apps over timeObservations:

  • App B has higher LTV until D60 but it doesn't have D90 retention. There is no scope to improve it's LTV post D60.

  • App A continues monetizing after D60 and it's LTV doubles by D180 as compared to App B. It manages to monetise the late users better too.

 

Implications:

  • CPI limit and Payback window are very low for App B as compared to App A. While we can acquire users better at the initial stages due to strong early monetisation, it becomes tough to scale the campaigns at a later stage.

  • App A has enough headroom for CPI bidding and its payback period is high too. This facilitates profitable UA scaling in the long run with up to D180 ROAS goals.

 

Some points:

  • Having just a good retention is not enough. In order to improve the LTV, the monetisation has to be strong.

  • While many app publishers focus only on D1, the fact remains that both early and late retentions are important.

  • It's also possbile to acquire high quality users with good retention numbers. But If the app itself doesn't have good retention factors, it becomse tough scale.

by (1.6k points)
edited by
+1 vote

While the impact of retention on UA is critical, there are 2 points to consider:

 1. Some apps, especially games, only aim to monetize users in the first 1-30 days. This type of model significantly reduces the impact that higher retention may have on LTV.

2. The best UA will not succeed if the product isn't built for long-term usability, no matter what. High retention is a result of a good product, not good UA.

by (430 points)