What Is Customer Lifetime Value (LTV)? Meaning, Formula and Examples
Customer Lifetime Value (LTV) explained in plain English: what it means, why it matters, how to calculate or apply it, a worked example and common mistakes.
Customer Lifetime Value (LTV): The total profit or revenue a customer generates over the relationship. It determines how much you can spend to acquire customers.
What Customer Lifetime Value means
The total profit or revenue a customer generates over the relationship.
Why it matters
It determines how much you can spend to acquire customers. Used alongside other metrics, it helps teams make better budget and strategy decisions.
How to calculate or apply it
LTV ≈ average order value × purchase frequency × lifespan × margin
Worked example
A customer buying ₹1,000 four times a year for two years at 40% margin has LTV of about ₹3,200.
Common mistake to avoid
Using revenue instead of margin.
Related terms
AOV (Average Order Value)
The average value of each order.
ACoS (Advertising Cost of Sales)
Ad spend divided by ad-attributed sales on marketplaces.
TACoS (Total Advertising Cost of Sales)
Ad spend divided by total sales.
Buy Box
The main purchase button on a marketplace listing shared by multiple sellers.
Need help putting this into practice? Gravmo offers D2C performance marketing. Get a proposal or message us on WhatsApp.
Frequently asked questions
Is Customer Lifetime Value the same for every business?
No. Good values depend on your industry, margins, goals and data quality. Compare against your own history first.
Where can I see Customer Lifetime Value?
Most values come from analytics, ad platforms, marketplace dashboards or your own sales records, depending on the metric.
Written and reviewed by Gravmo's marketing team. Read our editorial policy.
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