LTV

The total revenue a single customer generates across their entire relationship with your business. LTV = AOV × Purchase Frequency × Average Customer Lifespan.

LTV tells you the maximum you can afford to spend acquiring a customer. A healthy LTV:CAC ratio is 3:1 or higher, meaning for every £1 spent acquiring a customer, you earn £3 back.

A customer spends £40 with you 4 times per year and stays for 2 years. LTV = £40 × 4 × 2 = £320. If your CAC is £80, your LTV:CAC ratio is 4:1, healthy.