LTV (Lifetime Value)
Also known as: Customer Lifetime Value, CLV, CLTV
The total gross-profit a customer contributes over their lifetime with the brand.
LTV is the ceiling on CAC. Without an honest LTV read, teams either underspend (leaving growth on the table) or overspend (subsidising unprofitable cohorts). Every mature performance program has an LTV model — even a rough one — that feeds their bid strategy.
Definition
LTV is the projected total contribution margin a customer generates from first purchase until churn. It's the ceiling on how much you can pay to acquire that customer.
Why it matters
Without LTV you can't justify raising CAC to win at scale. Brands that pay $80 CAC on a $60 first-order beat brands that cap CAC at first-order profit — as long as their LTV supports it.
Formula
LTV = Avg Order Value × Purchase Frequency × Gross Margin × Avg Customer Lifespan
Simple LTV is a product of four levers — each is a place to intervene.
Simple vs cohort LTV
Simple LTV multiplies AOV × frequency × margin × lifespan. Cohort LTV tracks the same set of customers over calendar time and reports realised revenue at 30/60/90/180/365 days. Cohort is truer but slower; simple is faster but assumes the future looks like the past. Use simple LTV for weekly decisions and cohort LTV to sanity-check.
Payback period matters as much as LTV
A $300 LTV realised over 24 months costs you working capital. Track LTV/CAC and payback period together: many DTC boards want <12 month CAC payback on cold cohorts. Extend retention custom audiences and email/SMS to shorten payback.
Channel- and product-level LTV
LTV differs by acquisition channel: Meta prospecting cohorts usually have lower LTV than branded search because intent differs. First-purchased product also matters — subscribers who start on a repeat-consumable SKU have 2–3× higher LTV than those who start on a one-time gift.
AOV $70, 3.2 orders/year, 55% margin, 2.4-year lifespan → LTV ≈ $296.
Common mistakes
- ✕Using revenue LTV instead of contribution-margin LTV.
- ✕Assuming LTV from a mature cohort applies to a new cohort.
- ✕Not segmenting LTV by acquisition channel.
- ✕Ignoring first-order economics — you still need to fund payback.