What is LTV?
The total gross profit a business expects from a single customer across the entire relationship, not just the first order. LTV is what justifies paying to acquire customers who are unprofitable on their first purchase, since repeat orders make up the difference. It is most useful as a ratio against customer acquisition cost (CAC), and an LTV to CAC ratio of roughly 3 to 1 is the widely cited benchmark for a healthy, scalable business.
LTV is usually calculated as average order value multiplied by purchase frequency multiplied by expected customer lifespan, then taken on a gross-margin (contribution) basis rather than on revenue, so it reflects real profit. The LTV to CAC ratio is the key diagnostic: around 3 to 1 is considered healthy, close to 1 to 1 means you are spending nearly everything a customer is worth to acquire them, and a ratio well above 3 to 1 can signal underinvestment in growth (you could likely afford to acquire faster). LTV is what lets DTC brands bid aggressively on paid social and run first-order ROAS below break-even on purpose, because the repeat-purchase tail recovers the cost. The metric is most reliable for subscription and consumable categories with predictable repeat behavior and is far noisier for one-time or rarely-repeated purchases, where teams lean more on first-order ROAS and payback period instead.
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