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GTM, CRM & tracking Definition

Customer lifetime value LTV

Customer lifetime value (LTV) is the total gross profit a typical customer brings to your business over the whole time they keep buying from you.

Abbreviation
LTV
Also called
lifetime value, CLV, CLTV
Category
GTM, CRM & tracking
Updated
Sheet
14 of 40

Formula

LTV equals average order value × orders per year × years retained × gross margin
Average order value
What a customer spends each time they buy.
Orders per year
How often a typical customer buys in a year.
Years retained
How long they keep buying before they leave.
Gross margin
The share of each sale left after the cost of delivering it, as a decimal (0.4 means 40%).

Worked1,500 × 4 × 3 × 0.4 = 7,200

Worked example

D2C coffee brand

A coffee subscription brand has customers who spend 1,500 per order, order 4 times a year and stay 3 years, at a 40% gross margin. Each customer is worth 7,200 in gross profit over their life. Paying 2,000 to win one is comfortably worthwhile.

Why it matters

LTV answers the question that customer acquisition cost cannot: is this customer worth what we paid for them? Without it, you judge every channel on first-sale cost and favour the cheap, one-time buyers. With it, you can afford to pay more for the customers who come back, which is how smaller brands outbid bigger ones.

A common rule of thumb says LTV should be around three times CAC. Treat that as a starting point, not a law; cash-hungry businesses may need a quicker payback than the ratio suggests. A clinic with strong repeat visits can tolerate a higher CAC; a one-off service cannot.

How to improve it

  • Raise repeat purchases. A post-purchase email or WhatsApp reminder timed to when the product runs out is often the biggest lever.
  • Lift average order value with bundles and free-shipping thresholds.
  • Fix retention before acquisition. Find why customers leave in months two to four and address it.
  • Segment in your CRM. Customers from different channels have different lifetimes; spend toward the better ones.
  • Reward loyalty with early access or a referral offer; returning customers cost far less than new ones.

Common mistakes

  • Using revenue, not margin. A customer worth 30,000 in revenue and 3,000 in profit is a very different asset.
  • Projecting from too little data. Three months of history can't tell you what year three looks like; use cohorts and review them as they age.
  • Averaging everyone together. One loyal group can hide a majority that buys once.
  • Calculating it once and never refreshing it as prices, margins and behaviour change.

Sources

  1. Analytics dimensions and metricsGoogle Analytics Help · 2026

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