How do you calculate LTV?
LTV = AOV x Purchase Frequency x Customer Lifespan
| Input | Value |
|---|---|
| Average Order Value (AOV) | $60 |
| Purchases per year | 3 |
| Average customer lifespan | 2 years |
| LTV | $60 x 3 x 2 = $360 |
What is a good LTV?
LTV varies significantly by industry, business model, and how often customers naturally repurchase.| Industry | Typical LTV Range |
|---|---|
| E-commerce (general) | $100 - $300 |
| Subscription boxes | $200 - $1,000 |
| SaaS | $500 - $5,000+ |
| Beauty & Skincare | $150 - $400 |
| Fashion & Apparel | $100 - $250 |
LTV in plain English
LTV is like the total tab a regular runs up at your bar over years, not just what they spent tonight. Tonight’s bill might be $40. But if they come in every week for three years, their total tab is over $6,000. Most ad platforms only show you the first purchase. That makes profitable customers look expensive and unprofitable ones look fine. LTV gives you the full picture. It’s what you need to set realistic budgets for AOV and CAC.Common LTV mistakes
Only looking at first purchase value
Only looking at first purchase value
First-purchase revenue is the smallest slice of what a customer is worth. If you optimize your entire ad strategy around getting cheap first purchases, you’ll underspend on acquiring high-quality customers who stick around and buy again.
Ignoring LTV when setting ad budgets
Ignoring LTV when setting ad budgets
If your LTV is $360 and your margins are 40%, each customer is worth $144 in profit over their lifetime. You can afford a much higher CPA or CPL than if you were only looking at the $60 first order. LTV unlocks ad spend that would look unprofitable on first-purchase metrics alone.
Assuming all customers have the same LTV
Assuming all customers have the same LTV
LTV varies by where customers come from, what they first bought, and how they found you. A customer from a brand awareness campaign might have 3x the LTV of one who came in on a flash sale. Segment your LTV by acquisition channel, campaign, and product to find your most valuable customer sources.
How LTV relates to other metrics
| Metric | Relationship |
|---|---|
| AOV | LTV = AOV x Purchase Frequency x Customer Lifespan. Increasing AOV directly increases LTV. |
| CAC | LTV:CAC ratio should be at least 3:1. If LTV is $300 and CAC is $100, you’re in a healthy range. |
| Break-Even ROAS | Higher LTV effectively lowers your true break-even ROAS because repeat purchase profit offsets the initial acquisition cost. |
| CPA | Your maximum acceptable CPA should be based on LTV x Margin, not just first-purchase revenue x Margin. |
| CPL | Target CPL should factor in LTV. A lead worth $500 in lifetime value justifies a higher CPL than one worth $80. |
How to increase your LTV
Use email and SMS marketing for repeat purchases
The cheapest sale is to an existing customer. Set up post-purchase flows that bring customers back 30, 60, and 90 days after their first order. Even one extra purchase per customer has a significant impact on LTV at scale.
Launch a loyalty program
Points, rewards, or VIP tiers give customers a reason to consolidate their purchases with you instead of spreading them across competitors. Loyalty members typically have 2-3x the LTV of non-members.
Offer a subscription option
If your product is consumable or used regularly, a subscription converts one-time buyers into predictable recurring revenue. Even a 10% subscription attach rate can meaningfully improve your average LTV.
Cross-sell and upsell post-purchase
After someone buys a skincare cleanser, recommend the matching moisturizer. Cross-selling increases AOV on repeat orders and introduces customers to more of your product line, deepening the relationship.
Set your LTV expectations in AdAdvisor
Enter your business metrics in business settings. AdAdvisor uses your AOV and margin data to calculate whether campaigns are hitting profitable thresholds and to surface recommendations that account for long-term customer value.
Factor LTV into your ad strategy
AdAdvisor uses your business metrics, including AOV and break-even ROAS, to evaluate whether your campaigns are actually profitable. When you understand your LTV, you can set smarter budgets and stop leaving money on the table by underspending on your best customers.Try AdAdvisor Free
Set your business metrics and get AI-powered campaign recommendations based on real profitability.
ROAS Calculator
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