customers
LTV - Lifetime Value
The total revenue (or profit) a customer generates across all their purchases over their entire relationship with your brand.
Formula
LTV = AOV x Purchase Frequency x Customer Lifespan
LTV is the long-game metric. A customer who buys once for $80 has an LTV of $80. A customer who buys five times totaling $350 has an LTV of $350. The second customer is worth acquiring at a much higher CAC.
There are two versions: revenue LTV (total spend) and profit LTV (total contribution margin). Revenue LTV is easier to calculate. Profit LTV is what matters for business decisions. A high-AOV but high-return customer might have a lower profit LTV than a moderate-AOV customer who keeps everything.
LTV informs how much you can afford to spend to acquire a customer. If your 12-month LTV is $200 and your target payback period is 12 months, you can spend up to $200 in CAC and still be profitable - though most brands target a payback period of 3-6 months to protect cash flow.
Related terms
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