Key takeaways
- LTV is contribution margin summed over a defined window—not wishful “lifetime” revenue.
- Formula shortcut: AOV × frequency × lifespan × margin %; cohort sums are more honest for planning.
- Compare LTV to CAC and payback together—a 3:1 ratio with 18-month payback can still trap cash.
- Segment LTV by acquisition channel; blended averages hide prospecting that never repeats.
- Model repeat rate and margin in the Ecommerce Simulator before you trust a spreadsheet LTV.
Definition
LTV (customer lifetime value) — the total revenue or, more usefully, contribution margin you expect from one acquired customer over a defined period (often 12 or 24 months). It answers: after we pay to acquire this buyer, how much margin do they return before they churn or go dormant?
LTV formula
Classic shortcut: LTV = AOV × purchase frequency × lifespan × gross margin %
Cohort method (preferred): 12-month LTV = Σ (contribution per order for cohort) ÷ cohort size
Inputs must match your business model. A replenishment brand may use orders per year and 24-month windows. A gift or apparel brand may cap at 12 months because repeat is sparse. Subscription LTV often uses monthly ARPU ÷ monthly churn for a theoretical curve—then sanity-check against real cohort exports.
Always label revenue LTV vs contribution LTV. Finance and growth should use the same definition before anyone says “we’re at 4:1.”
What LTV hides
- Revenue disguised as margin — revenue LTV ignores shipping, fees, and returns. A $200 revenue LTV with 30% gross margin is $60 of product margin before logistics—not $200 to compare to a $50 CAC.
- Blended cohorts — email and branded search customers repeat; cold paid social may not. One blended LTV justifies spend that destroys cash on prospecting.
- Promo inflation — discount-driven first orders lift short-term LTV while training low-margin behavior.
- Long windows — 36-month LTV models look safe while payback needs cash in 90 days. Pair LTV with payback period.
- Churn definition drift — SaaS monthly churn ≠ ecommerce “never bought again.” See churn rate.
Worked example: contribution LTV vs revenue LTV
A supplement brand acquires 1,000 customers in Q1. Over 12 months the cohort averages 2.1 orders at $55 AOV. Revenue LTV = 2.1 × $55 = $115.50 per customer.
| Line | Per order | × 2.1 orders |
|---|---|---|
| AOV | $55.00 | $115.50 revenue |
| COGS (38%) | −$20.90 | −$43.89 |
| Shipping + fees (net) | −$9.50 | −$19.95 |
| Returns allowance | −$2.20 | −$4.62 |
| Contribution LTV (12 mo) | $22.40 | $47.04 |
| CAC (blended paid) | — | −$38.00 |
| LTV − CAC | — | +$9.04 |
Revenue LTV ($115.50) vs CAC ($38) implies 3.0:1—board-ready and misleading. Contribution LTV ($47.04) vs CAC is 1.24:1—barely viable. Payback in orders ≈ $38 ÷ $22.40 ≈ 1.7 contributing orders. If only 55% of the cohort reaches order two, many buyers never pay back. That is an economics problem dressed as a retention opportunity.
Use contribution LTV (margin after variable costs), not revenue LTV, when comparing to CAC. A 3:1 revenue LTV:CAC can still be underwater after shipping and fees.
Source: Growthegy operator practice; LTV:CAC glossary and store guide (2026)
How to use LTV in the Ecommerce Simulator
Open the Ecommerce Simulator and run LTV endgame: enter today's CAC, first-order contribution, and repeat purchase assumptions. Watch 12-month LTV and LTV:CAC move when you change one lever:
- +10% repeat rate within 90 days
- +$8 AOV via bundle without proportional COGS
- −3 points refund rate from PDP and sizing fixes
- −$6 CAC from creative and landing work
If LTV:CAC does not cross your scale threshold after realistic levers, the simulator saved you from scaling a spreadsheet fantasy.
Related guide
Walk through store-shaped numbers in ecommerce LTV, CAC, and payback. For retention mechanics that actually move LTV, read the customer retention framework and how to calculate and use LTV. Stack definitions in unit economics and LTV:CAC ratio.
Related terms
- CAC — cost to acquire; other half of LTV:CAC.
- AOV — scales each order in the LTV stack.
- Churn rate — leak that caps LTV.
- Customer retention rate — complement to churn.
- Payback period — cash window before LTV fully arrives.
Back to the ecommerce glossary. LTV is how you permission acquisition spend—if it is contribution-based, cohort-honest, and paired with payback.