LTV (Lifetime Value) – What is it and why is it critical for business?

LTV (or Customer Lifetime Value) is a metric that shows how much revenue a single customer generates on average over the course of their relationship. It is one of the most important metrics for assessing marketing effectiveness and a company's long-term profitability.

Basic Formulas for Calculating LTV

There are several ways to calculate Lifetime Value. The simplest one is for a quick, rough calculation:

LTV = (period margin – advertising costs) / number of receipts for the same period

Example:
Monthly margin = $100,000
Advertising costs = $50,000
Number of receipts = 200
→ LTV = (100,000 – $50,000) / 200 = $250 per customer per month

A more precise formula (taking into account Lifetime)

It's better to consider Lifetime (LT) – the average time a customer uses your product:

LTV = LT × revenue per customer for the LT period

Example (gym):
LT = 1 year
Revenue from one customer per year = $2,000
→ LTV = 2,000 × 1 = $2,000

This formula is ideal for businesses with fixed rates (subscriptions, monthly subscriptions, courses, paid apps).

For one-time purchases with repeat returns

If a customer makes a one-time purchase and then returns:

LTV = LT × average order × number of repeat purchases

Example (clothing store):
LT = 2 years
Average order = $3,000
Repeat purchases = 6
→ LTV = 2 × 3,000 × 6 = $36,000

Recommendation: Segment your plans and calculate LTV separately for each group to identify the most profitable ones.

Why does a business need LTV?

• Business Feasibility Assessment
• CAC Monitoring
• Planning

Example (English school):
LT = 6 months
Monthly cost = $1,500
→ LTV = 6 x 1,500 = $9,000
CAC = $1,500
→ Profit only starts in the 2nd month

If LT = 1 month → you're breaking even, with no profit. The problem could be in quality training, customer service, or a personalized approach.

How to increase customer LTV

1. Solve service and quality issues.

• Monitor customer feedback.
• Have emergency scripts.
• Respond quickly to negative feedback.
• Invest in a single return/gift – this will lead to repeat purchases and positive reviews.

2. Set up remarketing

• Use all available channels:
• Email and SMS marketing
• Social media
• Loyalty programs, discounts, promotions
• Retargeting

Calculate the average return period:

• Manicure - 4 weeks
• Men's haircut - 5-6 weeks
• Massage/dentist - every six months
• Clothing - start of season
• Flowers - women's holidays

Advertising during these periods is cheaper than attracting new customers.

3. Increase your average order value

Combine average order value increase methods + remarketing + quality service → high LTV and profit growth.

Conclusion: LTV is a key metric for any business with repeat sales. Knowing it, you can optimize your marketing, reduce CAC, and scale profits without increasing your advertising budget.