Customer Analytics
LTV (Customer Lifetime Value)
The total revenue or profit a customer generates over their entire relationship with your business.
Formula
LTV = Average Order Value × Purchase Frequency × Customer LifespanWhat is LTV?
Customer Lifetime Value (LTV or CLV) predicts the total revenue or profit a customer will generate throughout their entire relationship with your business. It's a forward-looking metric that helps you understand how much you can afford to spend on acquiring customers.
Why LTV Matters
LTV is the cornerstone of sustainable growth. If your LTV is higher than your CAC, you have a viable business model. The higher the LTV:CAC ratio, the more profitable each customer relationship.
How to Increase LTV
- Increase purchase frequency through email marketing and loyalty programs
- Increase AOV through upselling and cross-selling
- Improve retention through exceptional customer experience
- Expand product offerings to serve more needs
Example
AOV: $60. Purchases per year: 3. Average customer lifespan: 2.5 years. LTV = $60 × 3 × 2.5 = $450.
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