Glossary
LTV
LTV is lifetime value: what a customer is worth to a business over the whole relationship.
What it means
LTV is calculated as average order value multiplied by purchase frequency per year, multiplied by the average customer lifespan in years — with an optional margin view that multiplies the result by the gross margin percentage, so the figure is profit rather than revenue. The inputs are all estimates from your own business: how often your customers actually return, and how long they actually stay. A retention figure copied from another business is not your retention, and an LTV built on it is not your LTV. The honest use of LTV is the ratio with CAC: a customer must be worth more than they cost to win.
Example
As an illustration, suppose a store's average order is worth 30, its customers buy twice a year on average, and they keep buying for three years on average. The revenue LTV is 30 times 2 times 3, which is 180. If the store's gross margin is 50 percent, the margin-view LTV is 90. If winning one of those customers costs 20, the ratio is comfortable; if it costs 120, the store is losing money on every new customer it wins — however fast it grows.
Common misunderstandings
The most common misunderstanding is treating LTV as a promise: it is an estimate built on averages, and averages hide the customers who buy once and never return. The second is quoting LTV as revenue when the decision needs profit — a customer who spends 180 on goods that cost you 170 to supply and deliver is worth 10, not 180.
Related terms
Learn more
- Customer Acquisition for E-commerce
- Store Profitability
- Lifetime Value Calculator
- Customer Acquisition Cost Calculator
- E-commerce Fundamentals
- Back to the full glossary
Last checked: 14 November 2026.
Frequently asked questions
How is LTV calculated?
Average order value times purchase frequency per year times customer lifespan in years. Multiply by gross margin for the profit view rather than the revenue view.
Why is the LTV to CAC ratio the decision?
Because a customer must be worth more than they cost to win. CAC alone says nothing about whether winning customers is worth doing.
Should LTV be revenue or profit?
Profit is the honest version for decisions: a customer who spends 180 on goods that cost 170 to supply and deliver is worth 10, not 180.
Is LTV a prediction of what a customer will spend?
No. It is an estimate built on averages — how often customers return and how long they stay. Averages hide the customers who buy once and never return.