Organic users, non-organic users and user lifetime value

Posted on Posted in Data & Business Intelligence
Organic users and Non-organic users

Organic users (or organic traffic) are users who download/install the app and register as a result of an unpaid search or link (unpaid link, for example from "similar apps");

Non-organic users are users who come to the app via a paid link, a paid search or an ad. It's also common that in order to gain virtual coins or rewards from an app the user needs to install another app.

There several types of non-organic users:

  • CPC - Cost Per Click, how much you would pay for each click on the link/ad. Usually links/ads are directing the user to the AppStore/GooglePlay app's page.
  • CPI - Cost Per Install, how much you would pay for each install as a result of a click on the link/ad.
  • CPA - Cost Per Action, how much you would pay for each action the user performs in the new app. For example: you would pay per non-organic user who installed the app, registered, and played a game/did a video call/set up his account/etc. An action is whatever you define for your application.

In one of our researches and analysis we did about non-organic users, we wanted to know how much we should invest in non-organic traffic (AKA performance marketing). We decided that the ideal approach would be to calculate the User Life Time Value (ULTV).

User Life Time Value

The purpose of calculating the user life time value is to predict the net profit attributed to the entire future relationship with a user. That way we know, if user life time values is 5$, for example, we shouldn't pay more than that for non-organic traffic.

We used this formula in order to determine the user life time value:

User Life Time Value=sum_{r=month}^{infty} (1+m)x[frac{r}{1+i-r}]

Variables:

  • r - retention rate
  • i - the rate of discount (the interest rate used in discounted cash flow analysis to determine the present value of future cash flows)
  • m - margin effect. The margin effect the user has on our app. In our case m was the growth of the service and we will measure it using invites – (average number of sent invites) * (% conversion rate (from invite to registration))
  • x – how much money we expect to get from this user
    • In our case – a user is either purchasing a premium plan or is exposed to ads. Also, we offer other InApp purchases.
    • So in our case x was:  x= [(the probability that the user will purchase a premium plan) * (premium plan price) + (1 - (the probability that the user will purchase a premium plan)) * ((# of impressions the user will see) * eCPM) + (the probability user will purchase an inApp item) * (number of inApp purchase item) * (InApp purchase price)]

It is important to note that we calculated the ULTV per segment. That’s because a 15 years old female from the USA has a different life time value (LTV) than a 55+ years old male from Russia.

So we calculated the ULTV per age, gender and country.

That way, we know how much a user from each segment is worth to us – and more importantly we know how much we should invest in advertisement for that segment.

From our analysis we saw that non-organic users have lower retention rates than the organic users (the churn rate for non-organic users is significantly higher). 

We attributed the cause to the fact that non-organic users install the app and registered (retention is being calculated only for registered users) in order to gain something from the original app (where they saw the ad/link).

Tracking the User Life Time Value

Tracking the ULTV is important. When looking at total revenue, you should also look at the ULTV trend. If the app's revenue trend is positive, but the trend of ULTV is negative, you should check the revenue sources, and if the source of the revenue is from new user acquisition and not from retained users - you may be at a risk of "revenue bubble" - that will explode once the trend of new user acquisition slows down.

You can also identify new marketing opportunities. Most of us tend to invest only in the large segments  - where we get the a lot of new user acquisition and where most of our revenue comes from. But if we will look on a certain segment that has high ULTV but the total number of users from that segment isn't that high, there's an opportunity to perform marketing on that segment and increase the number of new user acquisition from that segment and hence increase revenue. 

Non-organic users and the impact on app rank

Still, it's important to mention the positive value that you can gain from non-organic traffic and that you should take into consideration while thinking about performance marketing and paying for non-organic traffic - the impact that non-organic traffic has on your app's rank in the AppStore/Google Play.

Apple and Google's algorithm for determine the rank in their store are a puzzle, but our analysis showed that the amount of store views and app install has a positive correlation to the rank.

Naturally when your app rank's is higher it will be exposed to more organic users. For example, if your app is the the Top 100 in your category (or Top 100 overall!) more organic users will be exposed to your app.

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