Peel Analytics

Not all customers are equal. Some purchase once and never return. Others become loyal advocates, spending with your brand for years. The difference between the two is captured in Customer Lifetime Value (LTV), a key e-commerce metric that determines how much a customer is worth to your business over their relationship with you.

LTV is one of the most powerful levers in e-commerce analytics. This guide covers what LTV means, how to calculate it, why it matters, and how to grow it.
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What is Customer Lifetime Value (LTV)?

‍Definition: LTV measures the total revenue you can expect from a customer throughout their entire relationship with your brand.

Formula: (Average Purchase Value x Purchase Frequency) x Average Customer Lifespan

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Example: If your AOV is $60, average purchase frequency is 4 times a year, and the average customer lifespan is 3 years, then:

LTV=60×4×3=$720LTV = 60 \times 4 \times 3 = \$720LTV=60×4×3=$720

This tells you that, on average, a customer brings in $720 in revenue over their lifetime.

Why LTV matters in e-commerce analytics

LTV is critical because it shifts the focus from short-term transactions to long-term profitability.

1. CAC vs LTV: Knowing your LTV allows you to decide how much you can afford to spend on acquiring customers. If your CAC is $50 and your LTV is $500, you have plenty of room to scale profitably.
   
   
2. Retention focus: LTV is the single best metric to justify investments in retention marketing. Higher LTV means more repeat purchases, better margins, and predictable revenue.
   
   
3. Valuation driver: For investors, high LTV indicates a sticky brand with loyal customers — a sign of strong future cash flow.
   
   

Peel helps you track LTV by customer cohorts, so you can see how LTV evolves over time, segmented by acquisition channel, product line, or subscription tier.

How to improve Customer Lifetime Value

• Personalize Customer Journeys
  Tailor your marketing to different cohorts. A first-time buyer should get different messaging from a repeat customer.
  
  
• Focus on Retention Programs
  Loyalty programs, subscriptions, and SMS/email re-engagement campaigns extend customer lifespan and increase repeat purchases.
  
  
• Upselling and Cross-Selling
  Increasing AOV directly improves LTV. Recommend complementary products at checkout or bundle offers.
  
  
• Customer Experience Excellence
  Simple touches like fast shipping, clear communication, and strong support reduce churn and lengthen the customer relationship.
  
  

FAQs

1. What is a good LTV for e-commerce?
   There is no one number, but many brands aim for an LTV at least 3x higher than their CAC.
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2. Does LTV only include revenue?
   Yes, LTV focuses on revenue per customer. Profitability is measured when you compare LTV against CAC.
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3. How does LTV differ for subscription vs. non-subscription brands?
   Subscription brands typically have higher, more predictable LTV since customers commit to recurring payments. Non-subscription brands must rely more on repeat purchase strategies.

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