What is Lifetime Value?
Lifetime value (LTV) refers to the total revenue a customer is expected to generate during their entire relationship with a business. It estimates a customer’s net profit attributed to the whole future business.
For example, an ecommerce site’s average customer LTV can be calculated by factoring their average purchase value, purchase frequency, and customer lifespan. This metric helps assess long-term customer profitability.
LTV is calculated by multiplying the average purchase value by the average purchase frequency and then dividing it by the churn rate. Additional factors like referral revenue may be included.
Knowing LTV helps companies determine appropriate spending on customer acquisition costs, segment customers, identify retention opportunities, and forecast revenues. High LTV customers are the most valuable.
Offering loyalty programs, subscriptions, and bundled pricing can increase average order value. Improving retention through better customer experience lifts LTV. Upselling and cross-selling also play a role.
In affiliate marketing, LTV refers to the total commissions earned from a referred user over their entire relationship with a merchant. Affiliates aim to maximize user LTV through incentives and continued promotion to high-value segments. LTV is a powerful metric for assessing customer relationships and targeting high-profit segments. Tracking LTV by acquisition channel and demographic enables smarter marketing. Lifetime value helps build sustainable revenue through long-term customer focus.
