🔥 Tier 1 - Must KnowID: ltv
Customer Lifetime Value (LTV / CLV)
Total profit a customer generates over time
In Simple Words (Zero Jargon):
The total net profit your business makes from a customer across their entire relationship with you.
Official Mathematical Equation
Revenue LTV = AOV × Purchase Frequency × Lifespan | Margin-Adjusted LTV = Revenue LTV × Gross Margin %
Why It Is Critical
LTV is what gives CAC meaning. A CAC number without LTV to compare it against is just a cost floating in space. LTV tells you how much a customer is actually worth to the business over time - and therefore how much you can rationally afford to spend acquiring them.
Strategic Rules of Thumb & Execution Playbook
- Always use margin-adjusted LTV when comparing against CAC.
- Start with a conservative estimate in the first 60-90 days. Refine it quarterly as real repeat-purchase data comes in.
- Segment LTV by acquisition channel - customers from different channels often have very different retention behaviours.
- If your LTV is low, aggressive bidding to acquire customers will never be sustainable. Fix the product or retention before scaling.
Calculation Example & Benchmark Matrix
| Component | Value / Calculation |
|---|---|
| Revenue LTV | ₹6,000 |
| Gross Margin | 40% |
| Margin-Adjusted LTV | ₹6,000 × 40% = ₹2,400 |
| Maximum Affordable CAC (at 3:1) | ₹2,400 ÷ 3 = ₹800 |
'If a CAC:LTV comparison does not survive having gross margin subtracted out, it was never a profitability number. It was a revenue number wearing a profitability costume - and those are dangerous to act on.'
What You Get: A number you can genuinely trust when deciding how aggressively to bid for a customer - instead of one that quietly overstates your room to spend.