Customer Lifetime Value (LTV) is the total revenue, or profit, a business expects to earn from a single customer across the entire time they stay a customer, factoring in repeat purchases and how long the relationship lasts.
Also written as LTV.
LTV sets the ceiling on what you can afford to spend to win a customer. A business that knows its LTV can bid confidently; a business that does not is guessing every time it spends on marketing.
For a small business with repeat customers, LTV is usually far higher than the value of a first sale. Marketing only to the first transaction leaves money on the table and makes good channels look unaffordable.
Improving LTV through retention is often cheaper than lowering CAC. A small lift in how long customers stay can change the whole economics of the business.
A hair salon has a client who visits every eight weeks and spends 120 dollars a visit. That is roughly 780 dollars a year.
If the average client stays for three years, the lifetime value is around 2,340 dollars in revenue, or roughly 1,600 dollars in profit at a typical salon margin.
Knowing that, the salon can comfortably spend 150 to 250 dollars to win a new client, a number that would look reckless if it only counted the first 120 dollar visit.
In-House uses LTV alongside CAC to size your marketing budget, so the strategy agent recommends spend that the customer economics actually support.