Calculated LTV with

What is Customer Lifetime Value (LTV) and Why is it important?

The customer lifetime value (LTV), is the total estimated revenue a store earns over the lifetime of their relationship with a single customer. LTV gives a single view to your ecommerce data by normalizing the sales journeys to either inform of your success or failure.

By calculating LTV on its own, the metric gives you an outlook on how well a store retains valuable customers, increases revenue from less valuable customers, and surfaces ways to improve the overall customer buying experience. Depending on your products, LTV should inform how much you should spend on customer acquisition, through the metric of Customer Acquisition Cost (CAC).

How can you use CAC with LTV? What benefit would it give you?

LTV will not be able to provide details of whether the store is growing or slowing down unless paired with CAC. If your CAC is higher than your LTV, it suggests you're losing money for every customer acquired. If your LTV is higher than your CAC, it suggests that you may be achieving a good retention rate when compared to the cost to acquire the customer.

A healthy LTV to CAC ratio is 3:1, this suggests the value of your customers should be three times more than the cost of acquiring them. If the ratio is 1:1, it suggests that you may not be making any profit from your customers as they are only generating as much profit as you're spending on ad spend to acquire them. A higher ratio of 5:1, suggests you're spending too little on advertising and may see a reduction in your LTV as buying cycles end for your current cohort.

Calculate Your LTV & CAC

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The Results

Your CAC

Your LTV

Your LTV:CAC Ratio

Calculated CAC with

What Metrics Effect Lifetime Value?

1. Churn rate The churn rate describes how often customers stop shopping at a business. This directly affects LTV by decreasing the overall value or revenue that could have been earned from the customer. It’s important to ensure you keep your churn rate low and your brand loyalty high.

2. Net Promoter Score This suggests how loyal customers are to the store, and who continues ordering. Building brand loyalty to acquire a positive Net Promoter Score can help retain customers and decrease overall churn rate, leading to a higher lifetime value.

How to Increase the LTV?

1. Act on customer feedback Open communication between the store and the customer can help a customer relate to the brand better. It is important for stores to listen to feedback from their customers as it can help them improve growth and reduce overall churn rate.

2. Retarget existing customers An effective way to increase LTV is to re-engage with customers who have previously ordered or are actively ordering from the store. These efforts could include email campaigns, Facebook ad campaigns, or community content releases to new and existing customers.

3. Increase branded community activity Industry trends are currently suggesting an increase in community activity from store influences can have a very positive impact on LTV. This is accomplished through providing more relatable content, a direct persona that is tied to the store that the customer can interact with, and a better personality for the store.

4. Increase AOV amounts Depending on your store and the products you sell, an opportunity to increase LTV is to deploy other sales opportunities within your store. An example of this is the creation of product upsells and cross sells as the customer creates a transaction in your store. We can suggest the CartHook Shopify App, one of the easiest product upsell/cross sell apps on the Shopify store.

Looking for more information about how to calculate LTV?

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