Customer Lifetime Value (LTV) refers to the total amount of revenue a customer is expected to generate for your business over the duration of their relationship. It reflects the long-term value of acquiring and retaining each customer.
You calculate LTV by multiplying the average purchase value by the average purchase frequency rate, and then multiplying that by the average customer lifespan.
LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan
LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan
If a customer spends $100 per order, shops 5 times per year, and remains loyal for 3 years, their LTV would be $1,500.
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A good LTV depends on your business model and customer acquisition costs. A healthy benchmark is when LTV is at least 3x higher than the cost to acquire the customer.
A low LTV can indicate poor retention, low repeat purchases, or misalignment with target audiences. This makes it harder to recoup acquisition costs.
Implement loyalty programs, excellent support, and personalized experiences to increase repeat purchases and long-term loyalty.
Offer complementary products and upgrades to increase average order value over time.
Use data to find your most profitable customers and tailor campaigns to attract and retain similar profiles.
