Definition
LTV (lifetime value)
LTV, or customer lifetime value, is the total revenue a business expects to earn from a single customer over the whole relationship. It combines how much they spend per purchase, how often they buy, and how long they stay, helping you know how much you can invest to win each one.
LTV answers a simple question: what is a customer worth over time, not just today? A cleaning service whose clients stay for two years is earning far more per customer than one whose clients leave after one visit, even if the first job costs the same.
Knowing LTV shapes smart spending. If a customer is worth 2,000 dollars over their lifetime, you can comfortably spend more to acquire them. LTV also highlights the value of retention: keeping customers longer directly raises this number.
How is customer lifetime value calculated?
A common approach multiplies average purchase value by purchase frequency and by the average length of the customer relationship. The result estimates total revenue from one customer over time.
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