What is LTV in ecommerce?
LTV = total gross profit per customer across their entire lifetime with you. The denominator of the LTV:CAC ratio that determines whether your unit economics work.
The formula
LTV (Customer Lifetime Value) = average order value × gross margin % × purchase frequency × customer lifespan (years).
Example: $60 AOV × 60% margin × 2 purchases/year × 3 years = $216 LTV.
Time horizons matter
Most brands report 12-month LTV (LTV12). It's the most useful working number because predicting 3-year retention from limited data is mostly fiction. LTV12 also lets you talk to investors in the same units.
The LTV:CAC ratio
Target LTV:CAC of 3:1 minimum for sustainable growth. 2:1 is survival mode. 1:1 means you're not profitable per customer. Anything above 4:1 typically means you're under-spending on acquisition + leaving growth on the table.
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