LTV (customer lifetime value)

LTV, or customer lifetime value (also written CLV or CLTV), estimates how much a customer is worth to your business over the whole time they keep buying from you. It matters most for brands with repeat purchases, such as consumables, skincare, supplements or pet food, where the first order is only part of the story.

How to calculate it

A simple revenue-based version is:

LTV = AOV × purchase frequency × customer lifespan

Many brands prefer a margin-based version, which multiplies the result by gross margin so that LTV reflects profit rather than revenue.

Worked example (made-up numbers): customers spend $50 per order, buy 3 times a year and stay for 2 years. Revenue LTV = 50 × 3 × 2 = $300. At a 60% gross margin, margin LTV = $180. Compare this with your acquisition cost in the LTV:CAC calculator.

Why it matters

LTV tells you how much you can afford to spend to acquire a customer. If you know a new customer is worth $180 in margin over time, you can justify a first-order CPA that would look unprofitable on day one, as long as your cash flow can handle the wait.

Cautions

• Early-stage brands often have too little history to estimate LTV reliably; use cohorts and conservative assumptions.
• LTV varies by acquisition channel, product and offer, so a single average can mislead.
• Compare LTV against CAC, not just against ad spend.