LTV (Customer Lifetime Value)
The total revenue a business expects from one customer across the entire relationship, beyond their first order.
In practice
It's most useful compared against CAC - if it costs more to acquire a customer than that customer will ever spend, the business model doesn't work no matter how good the marketing looks in isolation.
A subscription box service calculates that the average customer stays for 8 months and spends $240 total - that's the LTV used to decide how much can be spent acquiring each new subscriber.
Why it matters
A business that only looks at first-order profitability can wrongly reject a channel or offer that's actually profitable once repeat purchases over the full lifetime are factored in.
Worth knowing
- Typically modeled from average order value, purchase frequency, and average customer lifespan.
- Most meaningful when segmented - LTV often varies significantly by acquisition channel.
- Should be compared directly against CAC to judge whether an acquisition channel is sustainable.
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