Customer lifetime value (LTV)

LTVCustomer lifetime value (LTV)The total gross profit you expect from a customer across the whole relationship, not a single order. It tells you how much you can afford to spend to acquire and keep them.View in glossary is the total gross profit you expect from a customer across the entire relationship, not the value of one order. A simple working version: average order valueAverage order valueThe average amount spent per order: total revenue divided by number of orders. AOV thresholds are a common way to make value-based segments measurable, such as "customers in the top 20% by average order value".View in glossary × gross margin × purchases per year × years retained.

It matters because it sets the ceiling on what you can afford to pay to acquire and keep a customer. Pair it with CACCustomer acquisition cost (CAC)The fully-loaded cost of winning one new customer: ad spend, tools, and the people involved, divided by the number of customers acquired in the same period.View in glossary and the only ratio that counts falls out: LTVCustomer lifetime value (LTV)The total gross profit you expect from a customer across the whole relationship, not a single order. It tells you how much you can afford to spend to acquire and keep them.View in glossary : CACCustomer acquisition cost (CAC)The fully-loaded cost of winning one new customer: ad spend, tools, and the people involved, divided by the number of customers acquired in the same period.View in glossary.