Ecommerce LTV (Customer Lifetime Value) is a critical metric for understanding the long-term value that each customer brings to an online store. This is especially important for ecommerce businesses operating on repeat customer models, such as subscription services or products that are replenished over time (recurring or reocurring revenue). By calculating LTV, ecommerce businesses can assess whether they are effectively nurturing their customer relationships and if their marketing strategies are successful in driving repeat business. LTV is also helpful for forecasting future revenue and deciding how much to invest in acquiring new customers. It goes without saying that you can only have good LTV metrics is your accounting is sound and up to date.
Improving ecommerce LTV can be done through strategies that increase customer engagement and retention. These may include personalized marketing campaigns, offering incentives for repeat purchases, or creating customer loyalty programs. The higher the LTV, the more flexibility businesses have in spending on customer acquisition (CAC) while maintaining profitability. Ultimately, LTV serves as an indicator of long-term business health and customer satisfaction.
Read our in-depth article about ecommerce LTV.
Ecommerce LTV (Customer Lifetime Value) Formula
LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan
Customer lifetime value is calculated by multiplying the average purchase value by the purchase frequency and by the customer lifespan.