LTV (Customer Lifetime Value)
LTV (customer lifetime value) is the total profit you expect from a customer over the whole relationship, not just their first purchase.
Formula
LTV = Average order value × Purchases per year × Lifespan (years) × Gross margin
LTV reframes acquisition around long-term value. A customer who spends $60 an order, buys four times a year for three years at a 60% margin is worth about $432 in profit — far more than any single order, which is what justifies the cost to acquire them.
True LTV uses contribution margin (profit), not gross revenue, so it reflects money you actually keep. Compared against CAC, LTV tells you how much you can afford to spend to acquire a customer and still grow profitably.