LTV (Lifetime Value)
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PPC and SEO MarketingHow to calculate LTV?
The simplest formula: LTV = Average receipt × Number of purchases per year × Average duration of cooperation (in years)
Example: A customer buys dog food from you for $50. He does this 12 times a year (monthly). On average, dog owners buy food from you for 5 years. LTV = 50 × 12 × 5 = $3,000. One customer brings you $3000.
The golden rule of LTV and CAC
LTV is always compared to CAC (customer acquisition cost). The ideal ratio for a healthy business is **LTV:CAC = 3:1**. This means that the customer brings in three times more money than you spent to find him (through advertising). If the ratio is 1:1 - you work at zero.
How to increase LTV?
The longer the customer stays with you (for example, not 1 year, but 3 years), the higher the LTV. Loyalty programs, excellent service and email newsletters help here.
Offer more expensive versions of the product (Up-sell) or related products (Cross-sell) to increase the average check per transaction.
/ FAQ
Because attracting new customers is 5-7 times more expensive than selling to existing ones. A business with a high LTV can afford to spend more money on advertising and crowd out competitors.
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