The total a customer is expected to bring you over the whole time they keep buying. It can be counted as revenue or, more usefully, as gross profit.
Formula
LTV (revenue) = average order value × orders per year × years a customer stays. LTV (gross profit) = LTV (revenue) × gross margin
Example
Meera's online customers spend ₹2,000 an order, buy 3 times a year and, on her records, stay about 1 year. That is ₹2,000 × 3 × 1 = ₹6,000 of revenue, or ₹6,000 × 70% = ₹4,200 of gross profit.
How you'll hear it
“If LTV is ₹4,200 in gross profit, we can afford a CAC well above our first-order profit.”
What it helps you decide
How much you can afford to spend to win a customer, and whether to invest in getting customers back (WhatsApp, email, loyalty) rather than only finding new ones.
Where people misread it
People use revenue LTV against CAC, which overstates what a customer is worth. Others plug in hopeful repeat rates instead of what their records show, and forget that LTV is earned over months while CAC is paid today.
The story
Meera's freelancer pitches a bigger budget: a customer is worth ₹6,000, so we can pay up to ₹6,000 to win one. It sounds logical. It is wrong in two ways.
| Average order | ₹2,000 |
| Orders per year | 3 |
| Years they stay (from her records) | 1 |
| Revenue LTV | ₹6,000 |
|---|---|
| Clothes (30%) | −₹1,800 |
| Gross-profit LTV | ₹4,200 |
First, ₹6,000 is revenue. ₹1,800 of it goes to buying the clothes. Only ₹4,200 is available to pay for marketing, rent and profit. Paying ₹6,000 to win the customer would lose ₹1,800 on each one.
Second, the ₹4,200 arrives over a year, one order every four months. If she pays ₹4,000 upfront to win a customer, she waits most of the year to get it back, and any customer who stops after one order never repays it.
Use gross-profit LTV, built from what customers actually did. Compare it with CAC, and check how fast the money comes back.
All figures are illustrative. LTV here assumes the 1-year customer life from Meera's own records; yours will differ.
Estimate what a customer is worth
The example's numbers are filled in. Replace them with yours.
Use the gross-profit figure when you compare with CAC. The first-order figure shows how much comes back straight away.
Don't confuse it with
Related terms
Want to use this at work? AI-led PPC Excellence is aFactor's 16-week program for paid ads.
Sources
- What Is Customer Lifetime Value? How to Calculate CLV, Shopify, 2026
- What Is a Good LTV to CAC Ratio? How to Calculate It, Shopify, 2026