What is LTV (Lifetime Value)? — Definition for DTC operators

Definition

LTV is the projected total revenue a customer will generate over their relationship with your brand. Variants include gross LTV (revenue), net LTV (revenue minus refunds), and contribution LTV (the most honest version — revenue minus COGS, fulfillment, and second-order ad spend).

How operators actually use it

LTV is the ceiling on what you can rationally spend to acquire a customer. DTC operators compute LTV from cohort data — group all customers acquired in month X, then track cumulative revenue from that cohort over the next 12-36 months. A model brand might show 1.4-1.8x first-order revenue in months 2-12 from repeat purchases. Without an honest LTV number, every CAC decision is a guess.

Common pitfalls and honest-cost notes

The cardinal sin is extrapolating LTV from 30 days of data using a fitted curve — you have not earned that LTV yet, and the curve is heavily influenced by your most engaged customers. Always report cumulative-revenue-per-customer at fixed time points (day 30, 90, 180, 365) from actual cohort data and stop pretending you know year-3 LTV after 6 months in business.

Related terms

CAC (Customer Acquisition Cost) — CAC is the total cost to acquire a new customer, calculated as marketing spend divided by new customers acquired in the same window.
Cohort Analysis — Cohort analysis groups customers by a shared attribute (usually first-order month) and tracks how that group behaves over time — revenue, retention, repeat rate, refund rate.
Retention Rate — Retention rate is the percentage of customers from a starting cohort who are still active (have purchased or remained subscribed) at a later point.
Repeat Purchase Rate — Repeat purchase rate (RPR) is the percentage of customers who place a second order within a given window, regardless of product or timing.
Contribution Margin — Contribution margin is revenue minus all variable costs to deliver that revenue — COGS, payment processing, fulfillment, last-mile shipping, and the specific marketing spend that produced the order.