What is customer lifetime value (LTV)?
Customer lifetime value (LTV) is the profit one customer brings over the whole time they keep buying. It is worked out from what they spend per order, how often they buy, how long they stay, and what each order keeps after product, shipping and fees. Set beside CAC, it shows whether customers pay back what they cost to win.
The formula
This simple model assumes a customer keeps the same order value and buying pace for the whole period, and it does not discount future money. The cost of keeping a customer, such as email and retention offers, is left out.
Worked example
Each customer is worth $270.00 in profit, 6.00× what one costs to win.
Using it on Meta ads
Meta optimizes for the first purchase, so a campaign can look unprofitable on day one and still pay off over a customer's life. Use LTV to decide how much a first order may lose, with your contribution margin as the measure of what each repeat order keeps.
Keep the estimate cautious: the numbers come from customers you already have, and people from a new audience may buy differently. Compare it with your break-even ROAS on the first order.
Questions
Profit, when you compare it with what a customer costs to win. A customer who spends $450 at a 60% margin leaves $270 to pay for acquiring them, not $450.
From your store's order history: count orders per customer over a year, and see how long customers keep ordering. For a young store, use a cautious guess and update it as orders come in.
Above 1.00×, a customer pays back what it cost to win them over their lifetime. How far above depends on how long you can wait for the money: a ratio reached over three years ties up more cash than the same ratio reached in three months. A common rule of thumb is 3:1; what matters more is how fast it pays back.
