Definition
LTV is the total revenue or profit a customer generates over their relationship with your brand. It tells you how much you can afford to pay to acquire a customer.
LTV explained
Brands with consumable products, subscriptions or strong loyalty have high LTV and can bid more aggressively than competitors that rely on a single purchase. LTV is usually estimated over a fixed window such as 12 months.
Formula
LTV = average order value × purchase frequency × customer lifespan
Example
If a customer orders three times a year at 40 dollars profit each, their 12 month LTV in profit is 120 dollars.
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