Customer lifetime value
What is LTV (customer lifetime value)?
LTV (customer lifetime value) is the total revenue or profit you expect from one customer over the whole relationship.
Formula
LTV = average order value × orders per year × years retained
A $50 order, 2.5 times a year, for 2 years is $250 of lifetime revenue. At a 60% gross margin that's $150 of gross profit, the most you can spend to win that customer.
Work out yours with the LTV calculator.
A real store example
quip brush quiz: over 100 Meta ads linked here.
The quiz matches shoppers to an electric toothbrush, and Recharge, a subscription app, is detected on the page. A brush is bought once; refills bought on a schedule are where lifetime value comes from.
Put LTV to work
Ask Replo: "what's my 12-month customer LTV by first product?".
Go deeper
What is a good LTV to CAC ratio?LTV questions
- Should LTV be revenue or profit?
- Use gross profit when you compare it with acquisition cost. Revenue LTV overstates what a customer is worth, because product cost, shipping and fees come out of every order.
- How do I increase LTV?
- Get the second order. A follow-up with a reason to come back, a refill or subscription option, and products that pair with the first purchase all raise orders per customer without new ad spend.
Related terms
Browse the glossaryCAC
CAC (customer acquisition cost) is the total sales and marketing spend it takes to win one new customer.
Churn rate
Churn rate is the share of customers or subscribers who stop buying in a given period.
Subscription model
A subscription model charges customers on a schedule, such as monthly, for repeat delivery of a product or ongoing access to a service.
AOV
AOV (average order value) is the average amount a customer spends per order: revenue divided by number of orders.