What is LTV?

LTV is a way to measure the value that one customer has brought to your business over a period of time. It is probably one of the most important metrics for e-commerce business. Depending on the success of your advertising strategy, you can get higher LTV (meaning financial rewards from a single user over a longer period of time).

How to calculate LTV?

To calculate LTV average customer's value and multiple by the average customer lifespan.

To get these metrics you will need to perform several steps:

  • First, you have to determine the average purchase value (APV). To do that, divive the total company revenue (during a certain period of time, like 1 year)by the number of purchases made during that period.
  • Next, find our your average purchase frequency rate. Divide the total numbers of purchases made by a single user by the total numbers of other customers who made purchases during very same period of time.
  • Now you can estimate customer value. Multiple APV by average purchase frequency rate.
  • Now it’s time to find our what’s your business’s average customer lifespan, which you can do by estimating the number of years a customer has stayed with your business and completed purchases.
  • And here’s your LTV: multiply your average customer value by customer lifespan!

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