Lifetime Value (LTV)
The total revenue a business can expect from a single customer account throughout their entire relationship.
Customer Lifetime Value (CLV or LTV) is a metric that indicates the total revenue a business can reasonably expect from a single customer account consistently. It considers a customer’s revenue value and compares that widely to the company’s predicted customer lifespan.
Why LTV Matters
- Budgeting via CAC: LTV dictates how much you can afford to spend to acquire a customer (CAC). If your LTV is $5,000 (e.g., dental implants), you can afford a much higher CAC than if your LTV is $50.
- Retention Focus: High LTV businesses often focus heavily on retention and upselling, as extending the customer lifespan directly increases profitability.
- Valuation: Investors look at LTV:CAC ratios to determine the health and scalability of a business.
How to Calculate LTV
The simplest formula is: LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan
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Related Concepts
CAC (Customer Acquisition Cost)
The total cost of winning a customer to purchase a product or service.
A/B Testing
A method of comparing two versions of a webpage against each other to determine which one performs better.
Above the Fold
The portion of a webpage that is visible without scrolling.