Digital marketing term
LTV (Customer Lifetime Value)
LTV is the estimated total revenue a customer will generate for a company over the course of their relationship with the brand; it's a core metric for evaluating long-term marketing return.
Detailed explanation
This value is typically calculated by multiplying average order value, purchase frequency, and customer lifespan; some models also factor in profit margin to produce a net figure.
When evaluated alongside customer acquisition cost (CAC), this metric shows whether marketing investment is sustainable; if the LTV-to-CAC ratio is low, growth isn't profitable.
Loyalty programs, repeat-purchase campaigns, and customer experience improvements are typically strategies aimed at increasing this value; reducing churn rate also directly raises this metric.
Frequently asked questions
- How is LTV calculated?
- It's typically calculated by multiplying average order value, purchase frequency, and customer lifespan; some models also factor in profit margin.
- What's the relationship between LTV and CAC?
- If LTV is high relative to CAC, customer acquisition is profitable; if the ratio is low, marketing investment isn't sustainable.
Related terms
Internal links for the topic cluster — read these concepts together.
- CACAcquisition Cost is the total amount a business spends, on average, to win one new customer or conversion.
- Churn RateChurn Rate is the metric that expresses the percentage of customers who stop using a brand's service or product within a given period; it's a critical indicator of sustainable growth in subscription-based businesses.
- Repeat Purchase RateRepeat Purchase Rate measures the share of customers who have previously purchased from a brand at least once and go on to make another purchase within a given period.
- AOV (Average Order Value)AOV is an e-commerce metric found by dividing the total revenue from orders in a given period by the number of orders, showing how much customers spend on average per cart.
- Profit MarginProfit Margin is a core financial performance indicator that shows the percentage of a business's total revenue that becomes actual profit, revealing how much of sales converts into real earnings.