LTV

LTV (Customer Lifetime Value) is a metric that estimates the total revenue a single customer will generate for your business throughout their entire relationship with your brand.

While metrics like AOV focus on a single transaction, LTV focuses on the long-term value of the customer. It answers the critical question: "How much is this customer worth to me over time?"

How to Calculate LTV

Why is LTV Critical?

LTV is the ceiling for your marketing budget. It dictates exactly how much you can afford to spend to acquire a new customer (CAC).

1. The Golden Ratio (LTV:CAC): A healthy e-commerce business typically aims for a ratio of 3:1. If your LTV is $90, you should not spend more than $30 to acquire that customer.

2. Focus on Retention: It shifts the focus from "hunting" (finding new customers) to "farming" (nurturing existing ones). Selling to an existing customer is 5-25x cheaper than acquiring a new one.

3. Profitability Forecasting: High LTV indicates strong brand loyalty and product-market fit, allowing for more aggressive scaling.

Strategies to Increase LTV

To boost LTV, you must encourage repeat purchases and increase retention:

• Subscribe & Save: Implementing subscription models (especially on Amazon) creates recurring revenue and locks customers in.

• Post-Purchase Email Flows: Send replenishment reminders or educational content to keep your brand top-of-mind.

• Unboxing Experience: A premium unboxing experience increases the likelihood of a second purchase and positive reviews.

• Loyalty Programs: Reward customers for sticking with your brand.