The user lifetime value is abbreviated LTV. It refers to the total net profit expected to be gained from an individual customer over their lifetime relationship with the business. This concept helps businesses evaluate the costs of customer acquisition and create financial valuations of relationships with their customers. With this concept, future value of a customer shifts away from strict profitability and involves forecasting future activity.
The actual formula used to generate the LTV can vary, but, in general, it involves calculating the forecasting of future revenue, the predicted retention of the customer, and the future overhead, such as the cost of delivering those goods. An LTV is often used to determine the ROI on customer acquisition in marketing.« Back to Glossary Index