What is LTV(life-time value)?
Customer lifetime value (CLV, or LTV for “lifetime value”) is a metric that helps you to predict future revenue and measure long-term business success based on relationship with a customer.
LTV tells you how much profit your company can expect from a typical client over the course of the relationship. More to the point, LTV helps you estimate how much you should invest in order to retain a customer.
Compare your LTV results with acquisition costs to see if your marketing efforts are profitable: 1) if LTV is higher than the cost of acquisition, you might be in a good situation due to repeat purchases or high retention. However, the interpretation also depends on your industry and gross margin; 2) if you see that your costs constitute a small part of the gross margin (i.e. are lower than 10%), you might not be spending enough on marketing. Thus, you can invest more to grow.
It’s another matter if your LTV is equal to or close to your acquisition costs. This says that your business is spending almost as much on a customer as it gains.