Customer Lifetime Value
Also called: LTV, CLV, lifetime value
What is Customer Lifetime Value?
Customer lifetime value is the total profit a customer is expected to generate across the entire relationship, not from a single purchase. It combines average order value, purchase frequency and how long the customer stays.
Why Customer Lifetime Value matters
LTV is what makes acquisition spending rational. Without it, every marketing rupee is judged against one transaction, which systematically underinvests in retention-driven businesses.
Customer Lifetime Value formula
LTV = Average order contribution × Orders per year × Expected years retained
Compare with CAC to see whether acquisition is profitable.
How Customer Lifetime Value works in practice
Compute it on contribution rather than on revenue, so the number reflects money actually kept. Segment by customer type, since a regular weekday customer and a festive one-off are not the same asset.
Worked example
A customer contributing ₹120 per visit, visiting twice a month for two years, is worth about ₹5,760.
Frequently asked questions
Three to one is a widely used benchmark, though the right level depends on payback speed.