Customer Lifetime Value (LTV) isn’t just a marketing metric—it’s a business growth compass. It tells you exactly how much a customer is worth over the course of their relationship with your brand, helping you make smarter decisions around acquisition, retention, and budget allocation.
In a world where ad costs are rising and customer loyalty is harder to earn, knowing your LTV can be the difference between scaling profitably—or bleeding money.
Let’s dive into what LTV is, why it matters, and how to calculate it the right way.
What Is Customer Lifetime Value (LTV)?
Customer Lifetime Value is the total revenue a business can expect from a single customer over the duration of their relationship. It answers this simple but powerful question:
“How much is each customer worth to your business?”
When you know this number, you can:
- Set a realistic Customer Acquisition Cost (CAC)
- Allocate marketing budget more efficiently
- Segment customers based on value
- Identify which retention strategies are actually working
Why LTV Matters (Especially in eCommerce)
In eCommerce, especially for DTC brands and subscription-based businesses, repeat customers are often more profitable than new ones. If you’re focusing only on top-of-funnel growth without understanding retention, you’re likely overspending to acquire short-term buyers.
Here’s why LTV is essential:
- It helps you define a profitable CAC:LTV ratio
- Encourages investment in loyalty and email marketing
- Guides product development based on your highest-value customers
- Gives investors a clear signal of business health and potential
How to Calculate Customer LTV
There are several methods depending on how deep you want to go, but here’s the core formula used by most eCommerce brands:
javaCopyEditCustomer LTV = Average Order Value × Purchase Frequency × Customer Lifespan
Let’s break that down.
1. Average Order Value (AOV)
This is the average dollar amount a customer spends per order.
Formula:
iniCopyEditAOV = Total Revenue ÷ Number of Orders
2. Purchase Frequency
How often does a customer buy from you within a given time period?
Formula:
mathematicaCopyEditPurchase Frequency = Total Orders ÷ Total Customers
3. Customer Lifespan
This is the average number of months or years a customer continues purchasing from your brand. You can estimate this based on retention data or cohort analysis.
Example:
Let’s say:
- Average Order Value = $50
- Purchase Frequency = 4 times per year
- Customer Lifespan = 3 years
Then:
iniCopyEditLTV = $50 × 4 × 3 = $600
So, each customer is worth approximately $600 over their lifetime.
Adjusted LTV: Factoring in Gross Margin
If you want a more accurate picture (especially when budgeting for paid ads), it’s important to calculate gross profit LTV:
matlabCopyEditLTV (Adjusted) = LTV × Gross Margin %
So if your gross margin is 60%:
bashCopyEdit$600 × 0.6 = $360 true LTV
Now you can determine a reasonable acquisition cost. For example, if your CAC is $120 and your LTV is $360, your CAC:LTV ratio is 1:3, which is healthy and scalable.
How to Improve Customer LTV
Once you know your LTV, the next question becomes: how do you increase it? Here are proven strategies:
1. Email Marketing Automation
Automated flows (welcome series, post-purchase, win-back emails) keep your brand top of mind and increase repeat purchases.
If you’re not leveraging email segmentation and personalization, you’re leaving serious revenue on the table.
2. Personalized Product Recommendations
Use customer behavior and past purchases to suggest relevant items. This not only boosts AOV, but also builds a better customer experience.
3. Loyalty & Referral Programs
Give customers a reason to come back—and to bring others with them. Points systems, exclusive discounts, and referral bonuses drive both retention and acquisition.
4. Subscription Models
If your product allows for it, subscriptions are a powerful way to extend customer lifespan and predict revenue.
5. Post-Purchase Upsells and Cross-Sells
Your thank-you page or follow-up emails are prime real estate for increasing customer value. Don’t waste the opportunity to introduce complementary products.
What Blinkers Can Do For You
Tracking LTV is step one. Improving it? That’s where strategic retention marketing comes in.
At Blinkers, we help eCommerce brands not only understand their data—but act on it. From advanced email flows to personalized engagement strategies, we help you unlock more value from every customer you already have.
Want to increase your LTV and grow more profitably? Let’s talk about how we can help.
