What is customer lifetime value?
LTV estimates the contribution a customer generates over future purchases, not just the first order.
Direct answer
Customer lifetime value should be calculated from contribution margin over a defined time window, then compared with CAC.
Why this matters
It helps teams decide whether they can accept lower first-order profit because repeat purchase will pay back acquisition.
What to check
Use this term as an operating checkpoint, not just a glossary definition.
- Define the time window, such as 90, 180, or 365 days.
- Use customer cohorts rather than all-time averages.
- Exclude unrealistic repeat assumptions from budget decisions.
Common mistake
The dangerous mistake is using optimistic LTV to justify unprofitable acquisition before retention is proven.
FAQ
Should a new store use LTV for ad scaling?
Use it carefully. Until repeat purchase is proven, make first-order economics strong enough to survive.
Is LTV based on revenue or profit?
For operating decisions, contribution-margin LTV is more useful than revenue LTV.
How does LTV connect to email marketing?
Retention email can raise repeat purchase and LTV, but it should be measured by cohort contribution, not just opens and clicks.