LTV (Customer Lifetime Value)
LTV is the total revenue or profit a business can expect from a customer over the whole relationship.
LTV tells you how much a customer is worth, which sets how much you can spend to acquire and keep them. Profit-based LTV is safer for decisions than revenue-based LTV.
Repeat purchases, higher order value and longer customer lifespans all increase LTV.
Formula
Lifetime revenue = Order value × Orders per year × Years
LTV (profit) = Lifetime revenue × Gross margin %
Example
Customers spend 65 per order, 3 times a year, for 2.5 years, at a 55% margin. LTV is about 268.
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Common questions
How do I estimate customer lifespan?
From your data, or as 1 divided by your yearly churn rate.
Why compare LTV with CAC?
To check that customers are worth more than they cost to win.