LTV stands for Lifetime Value. Lifetime Value is a metric that measures the total value a customer will bring to a business over the course of their relationship.
Why LTV is an important metric?
LTV, or Life Time Value, is an important metric to measure the worth of a customer over time. It’s a measure of the net profit or revenue earned by a customer before they cease being a customer. With this knowledge, businesses can understand how much money they should be willing to invest in acquiring new customers as well as retaining existing ones.
How LTV is measured?
LTV is calculated by taking a customer’s average purchase amount, multiply it by their average purchase frequency, and then multiplying that number by the customer’s expected lifespan with the company. In other words, if a customer spends an average of $50 per purchase and makes three purchases per year over a five-year period—their LTV would be $750.