Customer lifetime value

Customer lifetime value, written as CLV or LTV, estimates how much a customer is worth over time, not just on their first order. A simple version is average order value times the number of orders a customer places over their lifetime. A better version uses gross profit instead of revenue.

LTV decides how much a store can afford to pay to win a customer. A store that only profits from the first order must keep its ad cost per customer below that first order's profit. A store whose customers come back three or four times can spend more up front and still make money over time. That is why brands with consumables, subscriptions and strong email programmes can outbid one-time dropshipping stores on ads.

Ways stores raise LTV:

• products people reorder, such as refills, skincare or supplements
• subscriptions with a small discount
• email and SMS flows after purchase
• loyalty and referral programmes

When you research competitors, signs of a high-LTV model include subscription apps, refill products and strong email capture on the store. These stores can often keep ads running with a lower first-order ROAS.