Financial Metrics
Lifetime Value (LTV)
The total revenue a business can reasonably expect from a single customer account throughout the business relationship.
What is LTV?
Customer Lifetime Value (LTV or CLV) predicts the net profit attributed to the entire future relationship with a customer.
Formula
(Average Purchase Value * Purchase Frequency) * Average Customer Lifespan
Importance
Understanding your LTV helps you determine:
- How much you can afford to spend on acquiring new customers (CAC).
- Which customer segments are most valuable.
- The long-term health of your business.