Analytics
What is LTV?
Lifetime Value
The total profit a customer is expected to bring across every order they ever place, not just the first one. It sets the ceiling on what you can afford to pay to acquire one, which is why a business with repeat purchases can outbid one without them.
Why it matters in practice
Lifetime value is a forecast wearing the clothes of a fact, so how it was built matters more than the figure. Two questions expose most of it: is it revenue or profit, and over how long. Revenue based lifetime value ignores the cost of goods and the cost of fulfilling every repeat order, so it always looks larger and always supports spending more. An unbounded horizon does the same thing, because value that arrives in year four cannot pay for advertising you are buying this month. The usable version is contribution profit over a horizon your cash can actually wait for, computed per cohort so it reflects the customers you are winning now.
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