LTV (Customer Lifetime Value)

Customer Lifetime Value estimates the total revenue a referred customer will produce over the whole relationship. It justifies revenue-share and recurring deals — advertisers can pay more per acquisition when LTV is high, and affiliates earn more from sticky customers.

LTV estimates the total revenue, or ideally gross profit, a customer generates across their entire relationship with a business. A common form multiplies average order value by purchase frequency and by the expected customer lifespan, so all three inputs must be measured over the same interval. It shifts attention from the value of a single sale to the cumulative value of a retained relationship.

The metric anchors acquisition spending, because knowing what a customer is worth over time tells you how much you can afford to pay to win one. Affiliates and merchants working recurring or subscription offers care about LTV most, since repeat billing dwarfs the first payment. Paired with acquisition cost, it defines whether a growth channel is sustainable.

The reference benchmark is the LTV to CAC ratio, where roughly 3:1 is widely treated as healthy; much lower suggests you are overpaying for customers and much higher may mean you are underinvesting in growth. Compute LTV on gross profit rather than revenue for a defensible number. Segment it by cohort, since acquisition source strongly predicts retention.

LTV is a forecast, and its weakness is that early estimates rest on assumed lifespan and retention that may not hold. Averaging across a customer base hides the reality that a small share of high-value buyers often drives most of the total. Discounting future revenue and excluding one-off outliers keep the figure grounded rather than aspirational.