Lifetime value (LTV)

What does lifetime value mean?

Lifetime value (LTV) refers to the total revenue a business can expect from a single customer over the entire span of their relationship. It’s a key metric that helps businesses understand the long-term value of their customer base and how much they can afford to invest in acquiring and retaining them.

Why is lifetime value important?

LTV helps you determine your marketing spend, pricing strategies, and customer support investments. A higher LTV means your customers are sticking around longer, buying more often, or making bigger purchases, which contributes to business growth and profitability.

How do you calculate lifetime value?

The basic LTV formula is:

LTV = Average Order Value × Purchase Frequency × Customer Lifespan

This gives you a clear picture of how much revenue a typical customer brings over time. Businesses can use more advanced models that factor in gross margin or customer acquisition cost for deeper insights.

How to increase customer lifetime value?

You can boost LTV by improving customer experience, offering loyalty programs, upselling or cross-selling, providing excellent support, and reducing churn through smart retention strategies.

Example of lifetime value:

If your average order value is $50, and the average customer buys 4 times per year for 3 years, your LTV is:
$50 × 4 × 3 = $600

Driftcharge Tip

Focus on nurturing existing customers instead of just acquiring new ones, repeat buyers are more profitable and cost less to retain.

Ganesh Pawar

• 

Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.