Customer lifetime value (LTV)
LTV is the total gross profit a customer is expected to generate over their relationship with a business, used to judge how much can be spent to acquire them.
A sound LTV multiplies average order value, purchase frequency, gross margin, and expected lifespan. Using margin rather than revenue is essential: a customer who spends 1,000 at a 40% margin is worth 400 in profit, and acquisition is paid in cash, not revenue.
LTV is most useful next to CAC. The LTV-to-CAC ratio shows whether acquisition economics work, and payback period shows how long capital is tied up before a customer repays their acquisition cost.
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