What is LTV? Meaning, Formula, and How to Use It for Ads
Also known as: Lifetime Value, Customer Lifetime Value, CLV
Short answer
LTV is the total value one customer brings over their whole life as a customer, not just the first purchase. An LTV of $2,000 means the average customer spends $2,000 before they stop buying.
Formula
LTV = AOV x Purchases per Year x Years Retained
Example
AOV $250, four purchases a year, retained two years. LTV = 250 x 4 x 2 = $2,000.
The simple way to think about it
The first purchase often just covers the ad cost. Real profit arrives with the purchases after it. LTV measures the whole relationship, not the introduction.
Why this decides who wins the auction
| Advertiser | What they count | Maximum CPA | Outcome |
|---|---|---|---|
| A | First purchase only | $90 | Loses the auction, small volume |
| B | Two-year LTV | $400 | Wins the auction, grows |
Both sell the same product. Advertiser B can pay more because they count the second and third purchase.
What you must track to calculate LTV
- A customer identity that stays the same across transactions.
- The value of every transaction, not just the count.
- First and last transaction dates, to measure retention.
Frequently asked questions
- Why does LTV change my CPA ceiling?
- If you only count the first purchase, your maximum CPA is small. If you count LTV, you can afford to pay more for a customer, because the profit arrives on the second and third purchase.
- What is the difference between LTV and AOV?
- AOV is one transaction. LTV sums every transaction from one customer. For subscriptions and consumables, the gap is large.
- How do I calculate LTV when the business is new?
- Use what you have and refresh it quarterly. Start with AOV and purchase count over the first three months, then project conservatively. A rough number you update beats a perfect one you never calculate.
Related terms
Your ad numbers are only as accurate as the data behind them
Konektor captures the Click ID and sends conversions that close on WhatsApp, over the phone, or in a shop back to the ad platform.