Customer lifetime value is the total revenue a customer generates throughout their relationship with your business. It is one of the most important metrics in marketing.

Why LTV Matters

  • Determines how much you can spend to acquire customers
  • Helps evaluate marketing channel profitability
  • Guides retention investment decisions
  • Enables long-term strategic planning

Basic LTV Calculation

LTV = Average Order Value x Purchase Frequency x Customer Lifespan

View Example Calculation

Average Order: £50
Purchases per Year: 4
Customer Lifespan: 3 years
LTV = £50 x 4 x 3 = £600

LTV to CAC Ratio

Compare LTV to Customer Acquisition Cost (CAC):

  • 3:1 or higher is healthy
  • 1:1 means you are breaking even
  • Below 1:1 means losing money

Increasing LTV

  • Improve retention (reduce churn)
  • Increase purchase frequency
  • Raise average order value
  • Cross-sell and upsell
  • Build loyalty programmes