Intro to Forecasting Lifetime Value for Mobile Apps

What is LTV?

LTV, or the Lifetime Value of a user, is a powerfully informative metric whose purpose is to give decision makers an idea as to what a new user’s monetary worth is. Moreover, when produced from a forecasting model, LTV can be calculated for some point in the future, using current data. In simplest form, LTV is calculated as the monetary contribution that an average user will generate during their lifespan.

Because LTV is such a popular topic it’s not surprising that the internet is a cornucopia of links to different LTV models, examples, and discussions. Yet, how you apply any of these models will vary depending on the intended use and yourcompany’s business model.

In general, the approach to calculating LTV includes two major inputs; retention and revenue. A third input that may be added is a referral or virality factor, to account for the number of additional new users each new user may refer.

When it comes to modeling LTV, there are a couple of generalized approaches one can take.

The first is using regression and curve fitting. Regression modeling in general is very popular and can uncover the relationships between variables of interest and their drivers of impact (stand by for our series of posts on regression analysis!). The benefit of this approach is that it is flexible and can be applied to several different data points for retention, revenue, and virality. Taking the time to understand the…