What is LTV (Customer Lifetime Value)?

LTV shows the total value a customer generates over their entire relationship. A healthy LTV:CAC ratio is at least 3:1.

Formula

LTV = AOV × Purchase Frequency (yearly) × Customer Lifespan (years)

Example

If AOV is $80, the customer orders 4x per year and stays active for 2.5 years, LTV = $80 × 4 × 2.5 = $800. If CAC is $200, LTV:CAC = 4:1 — healthy.

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Related Terms

CAC (Customer Acquisition Cost)

CAC shows the total cost of acquiring a new customer — including all marketing and sales costs. A healthy LTV:CAC ratio is at least 3:1.

Retention Rate

Retention rate shows what percentage of customers return and reorder within a given period. The 3-month e-commerce average is 20-30% — top brands reach 40%+.

Churn Rate

Churn rate shows what percentage of customers you lose in a given period. The e-commerce average after first purchase is 20-30% — dropping to 10-15% after the second purchase.

Cohort Analysis

Cohort analysis groups customers by their first purchase date and tracks behavior over time. It is the gold standard for measuring LTV, retention, and campaign effectiveness.

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What is LTV (Customer Lifetime Value)? | Margyn Glossary