Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV or CLV) is a metric that estimates the total revenue a business can expect from a single customer account over the duration of their relationship. It helps businesses understand the long-term value of acquiring and retaining customers, rather than focusing solely on initial purchase revenue.

LTV can be calculated in several ways. The simplest formula is: Average Order Value × Purchase Frequency × Customer Lifespan. More sophisticated approaches use cohort-based analysis, which tracks actual groups of customers over time to measure real retention and spending patterns. Margin-adjusted LTV accounts for the cost of goods sold and variable costs to show true profit per customer.

The LTV:CAC ratio (lifetime value divided by customer acquisition cost) is one of the most important metrics in e-commerce. A healthy ratio is typically 3:1 or higher, meaning each customer generates three times more value than it costs to acquire them. This ratio directly informs how much a brand can afford to spend on acquisition while remaining profitable.