Analysis
Customer lifetime value
Also called LTV, CLV.
Customer lifetime value is the expected net value a customer brings over the whole relationship. It is an estimate, and it is only as good as the retention behind it.
How it is measured
A simple form multiplies average order value, orders per year, and expected years of retention, then subtracts cost to serve. Cohort data gives you better inputs than site-wide averages.
Pick a horizon, such as three years, and compute from actual cohorts, not from a hoped-for rate. Show it as net margin, not revenue, or it will flatter every channel.
Worked example
A subscription candle company sees $34 average order, 5.2 orders a year, a 58 percent margin, and about 2.4 years of retention. That gives about $34 times 5.2 times 2.4 times 0.58, or roughly $246 per customer.
Paying $70 per customer on paid social leaves a healthy margin. For the cohort that came through a deep-discount code, retention is 1.1 years and the lifetime value falls to $113, a different story at the same acquisition cost.
How it differs
Customer lifetime value looks forward across a relationship. Churn rate describes how fast customers leave and feeds the forecast. Value without churn is a fantasy; churn without value is a rate with no price.
Common errors
Using revenue rather than margin. Applying a blended retention to all channels. Counting a forecast as a fact. Ignoring discount-driven cohorts. Not updating the number as cohorts age.
In practice
Calculate it per acquisition channel and per first-product group. Compare with the cost to acquire. Revisit each quarter, replacing the forecast with real data as cohorts mature.