How to Calculate and Improve Customer Lifetime Value for Your Fintech App

Creating loyal customers that purchase your products and services for life is the dream. Increasing customer lifetime value creates stability for your business and allows you to innovate new products and services that keep finance customers returning to your brand again and again.

To end the feast and famine cycle, companies need to increase customer lifetime value and keep customers engaged and nurtured. Fintech apps might be enjoying a boom right now, but it’s establishing a high lifetime value that creates sustainable growth and business stability.

Calculating CLV: A Refresher

The traditional approach to calculating CLV looks at sales, transactions, and retention through the lens of profit margins. To find lifetime value, use this equation:

Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period

Lifetime value calculates the gross value of the customer — the value without considering operating expenses and other expenditures. This is a great starting point, but you aren’t finished yet.

Then, find Customer lifetime value

The next step puts your entire customer value into perspective. Customer lifetime value —the traditional calculation — allows you to see revenue from customers with expenditures in place.

Customer Lifetime Value = Lifetime Value × Profit Margin

When you see where a customer’s revenue fits into all your operating expenses like advertising or management costs, you’ll get a better sense of your organization’s health.

Put it together

Let’s put this into a more concrete example. Thanks to your app, your average sale is $100, a figure that seems successful. However, you want to know for sure. Your typical customer purchases one on one financial advising just once per year through your app, but carries that habit for an average of five years. Your lifetime value would be:

$100 x 1 x 5 = $500

Great news so far. However, calculating in overhead costs, your profit margin is just 8%.

$500 x .08 (8%) = $40

You know you can do better, so you implement a software solution that allows you to gently nudge customers to consider purchasing other services besides their once-a-year financial check-in, pushing lifetime value to $850 (making CLV $68). In another scenario, you automate marketing to reduce costs and increase your profit margin to 15% (making CLV $75).

Either solution increases your overall customer lifetime value and the revenue of your company. And you knew what to do because you quantified your real revenue.

Calculating CLV Using Retention and Churn

You can also calculate CLV by looking at the revenue versus retention equation.

CLV= Average revenue per user x average retention per user

  1. First, find the average revenue per user. You can use any period of time, but one month is a great place to start. Total revenue / number of users = Average revenue ($10,000 / 500 = $20)
  2. Next, find your churn rate. Number of customers lost / number of customers at the beginning of the chosen time period = Churn rate (15 / 500 = .03) Make sure you use the same time metric as the average revenue equation, i.e., one month in both.
  3. Now, put it all together: $20 x .03 = $.60.

This alternative can help newer apps calculate CLV without longer-term customer activity and may help companies create plans for improving retention numbers. Nearly one in four users abandon mobile apps after one use, so calculating based on retention opens up further insights.

7 Methods for Boosting CLV

Now that you know your app’s CLV, it’s time to boost those numbers. Here are our top seven methods to increase customer loyalty and engagement.

  1. Leverage mobile deep linking: Deep linking is an incredible behavior-based personalization tool that removes obstacles and unnecessary steps.
  2. Continually improve onboarding and user-centric decision-making: Your primary engagement driver is to make the experience effortless by anticipating your users’ needs.
  3. Create a killer push notification strategy: Push notifications, when done correctly, offer incredible value to your app customers. The average app loses 73% of users within the first 48 hours; a push notification campaign improves onboarding and can cut that number down.
  4. Calculate and plan for baseline churn: You’re going to lose users, sometimes for reasons outside of your control. Building this calculation into your plans allows you to understand what a reasonable effort would be to maintain users without going to extremes.
  5. Integrate an omnichannel approach: Users are demanding more from apps. With an omnichannel approach, the customer gets a seamless, integrated experience and makes it more likely that they’ll keep an app around.
  6. Use the right metrics: Know what you need to track to understand your customer behavior and your business’ health. Use these seven key metrics: acquisition, activations, retention, engagement, uninstalls, drop-offs, and reachability. Read our in-depth guide to the how and why of leveraging these metrics.
  7. Humanize your brand to build trust: Finance is a niche with a ton of specialized vocabulary. Unless your app is specifically for CPAs or investment day traders, that jargon can be alienating. Instead, using down-to-earth language helps reduce boredom and overwhelm.

All these tactics are data-driven and user-centered. Each tactic can nudge your CLV higher and improve your app’s longevity by creating a memorable experience for your customers — one they want to repeat.

Improving Your Finance App’s CLV

When you know your current CLV, you understand how to build trust and nurture your customers. CleverTap‘s suite of tools — including 12+ engagement channels, audience segmentation, and real-time customer insights — offers a streamlined approach to growing your Fintech app.