Lifetime value (LTV)

Lifetime Value, or LTV, is basically the retail version of the "friend who’s always got your back"; it measures how much cash a customer will realistically drop into your hands for as long as they're still sipping your brand's Kool-Aid. It’s the metric that tells you how worth it is to keep those pesky customers around – or at least until their wallet starts giving you the cold shoulder. In essence, the higher the LTV, the more you should be throwing parties to keep the customers delighted and their credit cards working overtime!

Lifetime Value (LTV), also referred to as Customer Lifetime Value (CLV), is a predictive metric that estimates the total revenue a business can reasonably expect from a single customer account throughout the duration of the business relationship. By understanding the potential profitability of nurturing relationships with customers over time, businesses can make informed decisions on customer acquisition and retention strategies. Calculating LTV involves considering factors such as average purchase value, purchase frequency, and customer lifespan, providing insights into how changes in these variables can impact long-term profitability. LTV is essential for determining customer acquisition cost (CAC) limits, setting marketing budgets, and designing strategic initiatives to enhance customer experiences and foster loyalty.