What does Lifetime Value (LTV) measure?

Lifetime Value (LTV) is a metric that estimates the total net profit attributed to the entire future relationship with a customer. This measure takes into account various factors, including the revenue a customer is expected to bring over the course of their engagement with a business, minus the costs associated with acquiring and serving that customer. By calculating LTV, businesses can make informed decisions regarding customer acquisition costs, marketing budgets, and overall business strategies, as it highlights the long-term worth of a customer.

In this context, LTV allows companies to identify valuable customers and focus their efforts on retention strategies, thereby ensuring a more sustainable revenue stream over time. This understanding can also inform businesses about which customer segments are most profitable and shape marketing campaigns to target those segments effectively.