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Lifetime Value Definition
Lifetime Value (LTV) estimates the net profit generated from a user throughout their engagement with an app or service. It includes revenue from purchases, subscriptions, and ads, minus acquisition and retention costs.
How Lifetime Value Works
- Track user revenue streams over time.
- Calculate average revenue per user (ARPU).
- Multiply ARPU by average user lifespan.
- Adjust for acquisition and retention costs for net LTV.
Example of Lifetime Value
A mobile game generates an average of $15 per player over 6 months, but high-retention players yield $50+, influencing targeting strategy.
Why Lifetime Value Matters in Advertising
- Determines sustainable acquisition cost thresholds.
- Guides campaign budget allocation.
- Identifies high-value user segments.
- Helps predict long-term profitability.
