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Customer lifetime value · CLVThe profit a customer generates over their whole relationship with you.
LTV (lifetime value) is the total profit a customer produces across all their orders — not just the first. It tells you how much you can afford to spend acquiring a customer and still profit. Always base it on margin, not revenue, and check it against CAC.
In practice
LTV is the number that decides how aggressive you're allowed to be. If a customer is worth one order, your acquisition ceiling is that order's contribution and no more. If they reliably buy four times, you can pay several times as much to win them and still come out ahead — which is how brands in the same category can bid wildly different amounts for the same click without either being wrong.
The catch is that it's a forecast dressed as a measurement. Early-stage stores rarely have enough history to know their repeat behaviour, and an LTV built on a hopeful assumption will authorise spending that never earns out. Use contribution-based LTV rather than revenue, keep cash flow in view — you pay for acquisition today and collect the lifetime slowly — and revisit it as real cohorts mature.
Formula
LTV = Avg order value × Orders per customer × Gross margin
Example: $50 AOV × 3 orders × 50% margin = $75 LTV.
What a good result depends on
Meaningful only next to CAC — aim for an LTV:CAC around 3:1.
Common mistakes
- Using revenue instead of margin.
- Assuming every customer repeats — segment by cohort.
Questions people ask
- Should LTV use revenue or profit?
- Contribution profit, not revenue. Lifetime revenue of $400 on a 30% contribution margin is $120 of actual value — spending $200 to acquire that customer loses money however impressive the revenue figure sounds.
- Over what period should I measure it?
- Pick a window you can actually verify, commonly 12 or 24 months, and say which you're using. An unbounded lifetime figure can't be checked against reality and tends to drift upward with optimism.
- How does LTV change what I can pay for a customer?
- It raises the ceiling above first-order contribution — but you fund the gap from cash today and recover it over months. Growing fast on lifetime value is exactly how profitable businesses run out of money.