What is LTV?

What is LTV? LTV (customer lifetime value) is how much a customer is worth to a business over the whole relationship. A simple formula is average order value times orders per year times years as a customer. Multiply by your margin to get profit LTV, the version to compare with what you pay to win a customer.

Work it out: free LTV calculator.

What is the LTV formula?

LTV is average order value multiplied by purchase frequency and by customer lifespan. Shopify gives this formula and says to keep the time periods consistent, such as orders per year with lifespan in years.

LTV (revenue) = average order value × orders per year × years as a customer
LTV (profit) = LTV (revenue) × margin

LTV, CLV and CLTV all mean customer lifetime value. In lending, LTV means loan-to-value, which is unrelated.

Worked example

These are the example numbers the LTV calculator uses.

Input Value
Average order value 60
Orders per year 3
Years as a customer 2
Margin 40 percent
  • Revenue LTV = 60 × 3 × 2 = 360.
  • Profit LTV = 360 × 0.40 = 144.

Should LTV use revenue or profit?

Use profit when you compare LTV with acquisition cost. Revenue LTV still contains the cost of the products, shipping and fees, so comparing it with CAC overstates how much you can afford to spend to win a customer. Shopify notes that multiplying by margin gives a margin-adjusted estimate.

How does LTV relate to CAC?

LTV is what a customer brings in; CAC is what it cost to get them. With the example numbers, a profit LTV of 144 against a CAC of 62.50 (2,500 of acquisition spend for 40 new customers) leaves 81.50 per customer over two years.

Shopify's CAC guide says a CLV to CAC ratio between 3:1 and 5:1 suggests acquisition is working efficiently. Shopify's CLV in that guide is revenue-based, so a profit-based ratio will read lower for the same business. Here the profit ratio is 144 ÷ 62.50 = 2.3.

How is LTV used for AI and UGC ads?

LTV sets how much a brand can pay for a first order. If repeat orders are common, a creative that brings in customers at a first-order ROAS slightly below break-even can still be worth scaling, because the later orders cover the gap.

For creative testing this matters in two ways:

  • Different angles can bring in different customers. A discount angle and a quality angle on the same product may produce the same first-order CPA but different repeat rates. Where the data allows, compare LTV by the ad that acquired the customer.
  • LTV takes time to measure. Early decisions on a new AI version usually rest on CPA and ROAS; LTV confirms them months later.

Sources

Checked: 12 Oct 2026