What is LTV?
Lifetime Value. The total revenue a customer generates over their entire relationship with your brand. For subscription businesses, LTV = average monthly revenue per customer multiplied by average customer lifespan in months.
Calculating LTV
Simple LTV = Average Order Value x Purchase Frequency x Average Customer Lifespan. For a $50 AOV product purchased 4 times per year by customers who stay 2.5 years: LTV = $50 x 4 x 2.5 = $500. For subscription: LTV = Monthly Revenue Per Customer x Average Months Before Churn. A $30/month subscription with 5% monthly churn (20-month average lifespan) has an LTV of $600. LTV determines how much you can spend to acquire a customer.
LTV-to-CAC ratio
The LTV-to-CAC ratio is the health metric for your business. 3:1 is the standard benchmark (every $1 of acquisition cost generates $3 of lifetime revenue). Below 1:1, you are losing money on every customer. Between 1:1 and 3:1, you are growing but may not be profitable after overhead. Above 5:1, you are likely under-investing in acquisition and leaving growth on the table. Most funded DTC brands target 2.5-4:1 during growth phases.
Creative strategies for high-LTV customers
Not all customers have equal LTV. Focus acquisition creative on your highest-LTV segments. If subscription customers have 3x the LTV of one-time buyers, create ads specifically promoting the subscription option. If customers acquired through UGC-style creative have higher retention than those acquired through discount ads, shift budget toward UGC. Track LTV by creative source to optimize for long-term value, not just first-purchase CPA.