Metrics
LTV
The total revenue (or profit) a customer generates over their entire relationship with the brand. Calculated by multiplying average order value by purchase frequency by average customer lifespan. High-LTV brands (subscription, consumables, fashion with high repeat rates) can afford higher acquisition costs. A brand with $200 LTV and $60 CAC has a 3.3x CAC:LTV ratio, which is considered healthy. LTV should be calculated on a cohort basis to detect trends over time.
Why it matters
It sets the ceiling on what you can pay to acquire. Overestimate it and you overspend for a year before the cohort data disagrees.
In practice
Use realised value at a fixed horizon, 6 or 12 months, rather than a projected lifetime. Projected LTV is a model output and inherits every assumption in it.
Related terms