LTV: Definition & Calculation

What is LTV (Customer Lifetime Value)?

LTV (Lifetime Value), also known as Customer Lifetime Value or CLV, represents the total revenue a customer generates for your business throughout their relationship with your brand. It's one of the most strategic metrics in e-commerce.

Unlike transactional metrics that focus on a single purchase, LTV takes a long-term view. It helps you understand the true value of each acquired customer, beyond their first purchase.

For e-commerce businesses, knowing your LTV radically changes decision-making:

• How much to invest to acquire a new customer?
• Which customer segments to prioritize?
• What budget to allocate to retention vs acquisition?

LTV is intrinsically linked to other key metrics such as average order value, retention rate, and customer loyalty.

How to Calculate LTV?

There are several methods to calculate Lifetime Value, from the simplest to the most sophisticated.

Basic LTV Formula

The most accessible formula to start with:

LTV = Average Order Value x Annual Purchase Frequency x Customer Lifespan (in years)

Concrete example: A customer with an average order value of $75, purchasing 3 times per year and staying loyal for 4 years generates an LTV of $900.

LTV Formula with Margin

For a more precise view of actual profitability:

LTV = (Average Order Value x Gross Margin) x Purchase Frequency x Customer Lifespan

This approach integrates your margin to calculate the actual profit generated per customer.

Advanced LTV Calculation

Mature businesses use predictive models including:

• Retention rate by cohort
• Evolution of average order value over time
• Discount rate (time value of money)
• Customer service costs

Why is LTV Crucial for Your E-commerce?

Customer Lifetime Value transforms your business approach in several major ways.

Optimize Your Marketing Investments

Knowing your LTV allows you to define a profitable maximum customer acquisition cost (CAC). The golden rule: your LTV should be at least 3 times higher than your CAC.

If your average LTV is $300, you can invest up to $100 to acquire a customer while remaining profitable.

Intelligently Segment Your Customers

Not all customers have the same value. LTV analysis by segment reveals:

• Your VIP customers to pamper
• Segments with high development potential
• Unprofitable customers to stop targeting in acquisition

Arbitrate Between Acquisition and Retention

LTV highlights the importance of retention. Increasing your retention rate by just 5% can boost your profits by 25% to 95% according to studies.

Investing in loyalty becomes obvious when you understand its impact on LTV.

Drive Sustainable Growth

A rising LTV indicates a strengthening customer relationship. It's a much more reliable business health signal than simple revenue.

How Review Collect Helps You Maximize Your LTV

Review Collect directly acts on the levers that increase your customer lifetime value.

Collect Reviews to Build Trust

Authentic customer reviews create a virtuous cycle:

• New customers buy with confidence
• Existing customers feel valued when their feedback is requested
• Social proof encourages repeat purchases

Identify Your Promoter Customers

Thanks to integrated NPS surveys, Review Collect identifies your promoters — those high-LTV customers who actively recommend your brand.

Automate Post-Purchase Engagement

Review Collect's automated sequences maintain the connection with your customers:

• Review request at the right time
• Smart follow-up for non-respondents
• Personalized thank-yous

Each interaction strengthens the relationship and extends customer lifespan.

Leverage Insights to Personalize

Analysis of customer verbatims reveals what really matters to them. These insights allow you to adapt your offer and communication to maximize satisfaction — and therefore LTV.

By combining review collection, satisfaction analysis, and automation, Review Collect becomes an LTV accelerator for your e-commerce.