Glossary
Customer lifetime value.
LTV is what a customer is worth across their entire relationship with you — every order they will ever place, not just the first.
LTV = AOV × orders per year × years retained
average order value $125
orders a year 3
years retained 2
at $125 an order, 3 orders a year for 2 years — each customer is worth $750, 6 times the first order.
Why it beats first-order thinking
Judged on a single order, most paid acquisition looks like a losing trade. You pay $40 to win a $35 first purchase and the books say stop. Judged on lifetime value, that same customer might spend $200 before they drift away, and the trade looks sensible. LTV exists to make that second judgement possible: it sets what you pay for a customer against everything they will ever spend, not just their opening order. The working rule of thumb is an LTV to CAC ratio of about 3:1 — a customer should be worth roughly three times their acquisition cost. Below that, growth eats its own margin; far above it, you are probably underspending on ads.
How to raise it
The formula gives you three levers, and each moves on its own. Raise AOV with bundles and free-shipping thresholds. Raise frequency — the lever most stores neglect — by working on your repeat purchase rate: replenishment reminders, post-purchase email, a product line worth a second visit. And stretch the years by being worth staying for: quality, service, a reason to reorder. One caution before you act on the number: revenue LTV flatters you. The stricter variant multiplies by gross margin, so a $750 customer at a forty percent margin is really worth $300. Measure your ad budgets against that margin-adjusted figure, not the headline one.
Made with care by Astral Commerce