What is the LTV of a customer?

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This document provides an example of how to perform an analysis of customer Lifetime Value (LTV) for an ecommerce business. Customer LTV is a critical metric for ecommerce businesses, as it provides insight into how much revenue can be expected from a customer over the course of their relationship with the business.

To calculate customer LTV, we need to know the average order value (AOV), purchase frequency (PF), and customer lifespan (CL). The formula for calculating LTV is:


To calculate AOV, we take the total revenue generated by the business and divide it by the total number of orders. PF is calculated by dividing the total number of orders by the total number of unique customers. CL is the average length of time that a customer remains active with the business.

Once we have calculated LTV for each customer, we can segment our customer base and analyze the data to gain insights into which customer segments are the most valuable.

In order to perform this analysis, we will need to gather data on revenue, orders, and customers. This data can be obtained from an ecommerce platform such as Shopify or Magento. Once we have the data, we can use a spreadsheet program like Microsoft Excel or Google Sheets to perform the calculations and create visualizations.

By analyzing customer LTV, we can make informed decisions about marketing spend, customer acquisition, and retention strategies. This analysis can also help identify areas where the business can improve customer experience and increase revenue.

In conclusion, customer LTV is a crucial metric for ecommerce businesses. By calculating LTV and analyzing customer segments, businesses can gain valuable insights and make data-driven decisions that lead to increased revenue and customer satisfaction.