Big data can help businesses garner or maintain competitive advantage, to the extent that their sectors understand and apply the most useful customer profit analytics.  In a recent Kontagent post, CEO Jeff Tseng suggests Customer Lifetime Value (CLTV) is an important measure in protecting and enhancing profitability in what his team calls the “new app economy.”  Simply put, CLTV is the revenue a customer is expected to generate for a company over a lifetime.  As the popularity of free-to-download apps continues to grow, businesses can use data analysis to re-think marketing and acquisition strategies in the long-term.

In our “free download” world, the most profitable users are those that spend money on in-app purchases.  According to a Newzoo Report: “A whopping 91% of revenues from both Android and iOS games in the U.S. come from micro-transactions made within games as opposed to a one-off fee for downloading.”  Tseng suggests businesses need to think beyond the short term to understand how best to retain these customers and acquire new ones.  He states: “Users are no longer paying to download applications, they are paying to actually use the applications and engage them.  So, the way to really drive monetization on, and to make money off of each of those customers, is actually to do it over their entire lifetime.  So, it’s really important to be able to measure lifetime value.”

CLTV helps a business determine how much they can afford to spend to acquire new customers without compromising profit.  For example, if average lifetime value is $20,000 over 20 years, a company learns they stand to compromise revenue when spending over $20,000 per acquisition.  Conversely, if they under-spend in acquisition, they risk losing customers to competitors.  A Harvard Business School publication explains the costly consequences of not taking CLTV into account. “Companies need to be concerned with the future revenue [associated] with the ongoing satisfaction and retention of their core, profitable customer base…The companies that fail to recognize this truth overspend in marketing to acquire and retain less profitable or even unprofitable customers…”

Jaime Fitzgerald of DataVersity suggests Big Data is a game-changer in terms of profit analytics because “larger and more diverse datasets with customer profit metrics creates a powerful platform from which to understand, predict, and improve the most important metric in your business: the profit you earn from your customers.”  A strong understanding and application of CLTV helps businesses re-think projects like retention incentives and, in turn enhance long-term revenue and profitability.