Lifetime Value, often called LTV, represents the total revenue a customer is expected to generate for a business over the entire duration of their relationship. When someone asks “what is lifetime value” or “what does lifetime value mean,” they want to understand how valuable a customer is beyond just a single purchase or action. LTV helps advertisers and marketers determine how much they can afford to spend to acquire a new user while still remaining profitable. By knowing the long-term worth of each customer, companies can make smarter decisions about budgeting, scaling campaigns, and improving retention strategies.
How to Calculate Lifetime Value
To answer “how to calculate lifetime value,” businesses generally use a simple formula:
- LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan.
In subscription or advertising environments, it may be calculated as:
- LTV = Average Revenue per User (ARPU) × Average Customer Lifetime.
The goal is to estimate how much revenue one user brings from the moment they join to the moment they stop engaging. Understanding LTV allows brands to optimize ad spend, improve targeting, and focus on audiences that deliver the highest long-term profitability.
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