In one sentence
Customer lifetime value is the total revenue or profit you can expect from one customer over your whole relationship, and it sets how much you can afford to spend to win them.
How to calculate customer lifetime value
A simple version: multiply average order value (AOV) by orders per year by the number of years a customer keeps buying. A customer who spends $50 an order, orders three times a year and stays two years is worth $300 in revenue.
For decisions about spend, use margin instead of revenue. Multiply that $300 by your gross margin to see what the customer is really worth to you.
LTV vs. CAC: how to read them together
If a customer is worth more than they cost to win, you can grow by spending more. If not, every new customer loses money.
Why customer lifetime value matters for ecommerce brands
Judging marketing only on first orders undervalues channels that bring loyal customers. A channel with a higher customer acquisition cost (CAC) can still be your best one if its customers keep coming back.
LTV also shows where to invest after the first order: email and SMS flows, subscriptions, loyalty programs and better products.
How to increase customer lifetime value
- Set up post-purchase Email and SMS flows: thank-you, how-to-use, review request and replenishment reminders.
- Offer subscriptions for products people run out of.
- Recommend the next product based on the first one they bought.
- Fix the reasons customers don't return: sizing issues, slow shipping, poor quality.
Customer lifetime value FAQs
Should LTV be based on revenue or profit?
Profit, when you use it to set ad budgets. Revenue LTV looks bigger but ignores what it costs to make and ship each order.
How do I calculate LTV for a new store without much history?
Use your repeat purchase rate from the first months as a starting estimate, then update it as your cohorts age. Early LTV estimates are guesses, so keep them conservative.
Do customers from different channels have different LTV?
Often, yes. Group customers by first-visit source with cohort analysis and compare. It's the only way to know which channels bring customers worth paying for.
About the author
Jenn Starr, Co-founder, Selix
Jenn has spent 20+ years helping SaaS startups build their marketing and implementation playbooks. She has bootstrapped three marketing agencies and is a 500 Startups alum. At Selix, she leads the work of getting ecommerce brands named in AI answers.
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