Question

Assume that an average user of an iPhone application buys a plan that is worth $80. They tend to repeat this purchase two more times. And our profit margin is 25%.

Develop a calculation to calculate the life time value of a user?

please show detailed steps of your calculations

Answer 1

Calculation of Life -Time Value of a User of iPhone Application:

In simple terms, customer life time value or life time value of a user refers to the total value to a business of a customer over the whole period of their relationship with the company.

Customer Life-Time Value:Average Order Value*Purchase Frequency*Margin

Let us first Calculate:Average Order Value

Average Order Value=Order Price/Number of orders

Here, Order Price= $80

Number of orders= 3

Putting these values into the formula we get:

Average Order Value= $80/3 ie. $26.67

Purchase Frequency=Number of Orders/Unique Customers

Number of Orders=3

Since life time value of a single customer is being determined therefore number of unique customers will be 1

So ,Purchase Frequency=3

Margin as given in the question is 25%

Putting these values into the formula for Customer Lifetime Value we get:

Customer Lifetime Value= $26.67+3+.25 ie. $29.92