Question

Jacob has written a game app that has been accepted by the iTunes App Store. The app will sell for $4.99, and it is expected to attract 1,135 users when it is introduced. While not absolutely necessary, app users can purchase items and extra powers, such as the ability to speed up the growth of a potent substance that can be used to defeat enemies, at an additional cost. It is estimated that 657 of the original 1,135 users will spend $5.87 each in the month after the purchase. In the following three months, a slight drop in the initial users is anticipated, but the remaining group is expected to spend more to purchase additional items and extra powers. If Jacob spends nothing on remarketing costs, it is assumed that the app will play itself out after six months—i.e., none of these users will continue to play unless Jacob commits to spending something on remarketing, which he does not plan to do, believing that the life cycle of the app is probably six months. Jacob will earn a profit margin of 79% on all sales. Estimate the CLV for an average customer using the “cohort and incubate” method, assuming a monthly discount rate of 1% and the projected monthly sales provided below:

Period 0 1 2 3 4 5 6 Number of Customers 1,135 657 450 250 100 50 25 Avg. Revenue/Customer $4.99 $5.87 $8.00 $6.25 $5.15 $4.50 $3.00

Please Post with the formula and steps.

Thank you.

Answer 1

Year	0	1	2	3	4	5	6
customers	1135	657.00	450.00	250.00	100.00	50.00	25.00
Revenue per customer	4.99	5.87	8.00	6.25	5.15	4.50	3.00
Total Revenue	$5,663.65	$3,856.59	$3,600.00	$1,562.50	$515.00	$225.00	$75.00
Pv factor for 1%	1	0.9901	0.9803	0.9706	0.961	0.9515	0.942
Pv	5663.65	3818.409759	3529.08	1516.5625	494.915	214.0875	70.65
Cusrtomer Lifetime Value CLV =	5663.65+3818.409759+3529.08+1516.5625+494.915+214.0875+70.65
	=15307.3548
Profit on sales = 79% of $15307.354759 =	12092.81$
Answer=	12092.81$