What is LTV analysis?

What is LTV analysis? How to calculate it? How to drive business growth through LTV analysis? This article will answer your confusion and help you better analyze data and accurately grasp user value. It is recommended for data analysis enthusiasts.

In today's highly competitive market environment, if companies want to achieve sustainable growth, they must deeply understand and accurately grasp the value of their users. Among them, LTV (Lifetime Value) analysis, as a key data analysis tool, is gradually becoming the core basis for companies to formulate market strategies, evaluate investment returns, and optimize user relationship management. This article will explore the basic concepts, calculation methods, application scenarios, and how to drive business growth through LTV analysis.

1. Basic Concepts of LTV Analysis

LTV is the abbreviation of Life Time Value, which refers to the commercial value contributed by users in their life cycle. LTV analysis is an analytical model for analyzing the commercial value of users. It can analyze the per capita value contributed by a group of users who visited on a specific date within a certain period of time.

LTV analysis can help answer questions like:

• The effectiveness of advertising: Which channel brings higher per capita value to users? Is the value contributed by users higher than the cost of acquiring users?
• The effectiveness of marketing activities: Did the operation activities bring significant benefits? Did the average value of users increase? Was the operation activity good or bad?
• Product iteration and function optimization: Can the game product bring enough per capita consumption to cover the development costs? How long will it take for the player value to stabilize?
• User segmentation: Which user groups are high-value users of our products? What are the characteristics of these customers?

Typical case: What is the average recharge amount per person (LTV 30) within 30 days for new users registered on September 10?

2. How to calculate LTV

Calculation process:

• Target new user groups through initial date (September 10) and event (registration);
• Calculate the cumulative recharge amount of the user group from the initial time (September 10) within the LTV duration (30 days);
• Divide the cumulative recharge amount by the initial number of people (the number of users registered on September 10) to get LTV 30.

There are many ways to calculate LTV, but the basic idea is to estimate the lifetime value of a user by predicting their future consumption behavior. A common calculation formula is:

in:

• ARPU (Average Revenue Per User): The average revenue per user, usually calculated by dividing total revenue by the total number of users.
• Retention Rate: The proportion of users who continue to use the app in the next time period, reflecting user stickiness and loyalty.
• The 1-Retention Rate in the denominator is used to calculate the average length of the user life cycle, that is, how long the user will maintain an interactive relationship with the company on average.

It should be noted that this is only a basic formula. In actual applications, it may need to be adjusted according to specific business conditions, such as considering factors such as user acquisition cost (CAC), user activity, and user stratification.

III. Application Scenarios of LTV Analysis

• Product pricing strategy : Through LTV analysis, companies can understand the long-term value of different user groups and formulate more reasonable pricing strategies to ensure that they maximize profits while attracting users.
• Marketing strategy : Understanding the LTV of users from different channels can help companies optimize their advertising strategies, invest more resources in high-value user channels, and improve the ROI of marketing.
• User relationship management : Based on LTV analysis, companies can identify high-value users and low-value users, implement differentiated user relationship management strategies, and improve user satisfaction and loyalty.
• Product iteration and optimization : By analyzing the changing trends of LTV, companies can discover the key factors that affect the long-term value of users, and then guide the direction of product iteration and optimization to improve user experience and product competitiveness.

4. How to drive business growth through LTV analysis

• Precision marketing : Utilize the LTV analysis results to implement more precise marketing strategies for high-value users, such as personalized recommendations and customized services, to improve user conversion rates and repurchase rates.
• Cost control : Under the premise of maintaining user experience, control CAC by optimizing user acquisition channels, reducing user service costs, etc., and improve the ratio of LTV to CAC to achieve profit growth.
• Product innovation : Based on the user needs and market trends discovered through LTV analysis, promote product innovation, develop new products or services that meet user expectations, and expand the boundaries of user value.
• Continuous optimization : Establish an LTV monitoring system, regularly review and analyze LTV changes, and promptly adjust market strategies, product directions, and service processes to form a closed loop of continuous optimization and iteration.

Author: Qian Bingyi

Source: WeChat public account: "Data Maker (ID: zhuangxiu1314)"