The essentials
- Definition: LTV is the gross margin a customer generates over the whole length of their relationship with the business, not their first purchase.
- Simple formula: average basket × gross margin × annual purchase frequency × lifetime in years.
- Benchmark ratio: LTV / CAC above 3; below 2, acquisition destroys value; above 5, the business is probably under-investing.
- In social ads: thinking in LTV lets you accept an acquisition cost higher than the margin on the first purchase, which a 7-day ROAS rules out.
LTV (lifetime value, or customer lifetime value) is the figure that separates advertisers able to invest from those who switch off their campaigns in the first month. It answers a simple question: how much margin does a customer bring over their whole relationship with the business? Without this value, the acquisition cost has no benchmark, and a campaign's ROAS is judged on the first purchase, which penalises any business with repeat purchases. Here are the formulas, the orders of magnitude and how to use them in social ads.
Definition and scope
LTV is calculated in margin, not in revenue. A customer who buys €1,000 a year at 30% gross margin is worth €300 a year, before acquisition and service costs. Three conventions have to be settled before any calculation:
- The margin used: gross margin (price less cost of goods sold and delivery costs); marketing costs are excluded, since they will be compared with LTV.
- The lifetime: observed on past cohorts, or capped at three years to stay cautious.
- The discount rate: optional in an SME; funded companies apply it (8 to 12% a year) so as not to overvalue distant revenue.
The two useful formulas
| Method | Formula | When to use it |
|---|---|---|
| Simple | Average basket × gross margin × purchases per year × lifetime (years) | First calculation, stable business, less than two years of history |
| By churn rate | Annual margin per customer ÷ annual churn rate | Subscriptions and recurring businesses; the churn rate replaces the lifetime |
| By cohort | Actual cumulative margin of customers acquired in the same month, tracked over 12, 24 and 36 months | E-commerce with history; the only method that measures instead of estimating |
Simple example: a food supplements shop, €45 basket, 55% gross margin, 4 purchases a year, 2-year lifetime. LTV = 45 × 0.55 × 4 × 2 = €198. Churn example: software at €60 a month, 80% margin, 30% annual churn. Annual margin €576, LTV = 576 ÷ 0.30 = €1,920.
Orders of magnitude by business type
| Business | Typical LTV (margin) | Typical 2026 social ads CAC | LTV / CAC ratio |
|---|---|---|---|
| Fashion e-commerce, occasional purchase | €40 to €120 | €20 to €50 | 1.5 to 3 |
| Consumable e-commerce (beauty, food, pet supplies) | €150 to €400 | €25 to €60 | 3 to 8 |
| B2C services with repeat purchase (coaching, treatments, training) | €300 to €1,500 | €40 to €150 | 3 to 10 |
| B2B subscription software | €1,500 to €15,000 | €300 to €2,000 (LinkedIn) | 3 to 8 |
The LTV / CAC ratio is the reading that counts. Below 2, each customer acquired costs almost what they bring in, and the slightest measurement gap makes acquisition loss-making. Above 3, the business can invest. Above 5 to 6, it is probably leaving profitable customers to its competitors. Calculating CAC is detailed in the definition of customer acquisition cost.
What LTV changes in social ads
Ad managers work on short attribution windows: 7 days after a click on Meta, 30 days on LinkedIn. The ROAS displayed therefore counts only the first purchase. For a business with repeat purchases, that figure understates real profitability by a factor of two to four. Three practical consequences:
- The ROAS break-even point is calculated on the margin of the first purchase plus a cautious share of LTV, not on the first purchase alone. The method is in ROAS in SMA.
- The target cost per acquisition can exceed the margin on the first purchase, provided cash flow can absorb the payback period, which should be watched and kept under 6 to 9 months in e-commerce.
- Value audiences (customers whose LTV is in the top third) act as a source for lookalike audiences, which improves the quality of recruitment; see lookalike audiences.
Meta also lets you optimise a campaign on conversion value rather than on the number of conversions, provided the amount of each purchase is sent through the pixel and the conversions API. Combined with a known LTV, this setting steers delivery towards the profiles that buy the most, not only the most often.
Common calculation mistakes
- Calculating in revenue and comparing it with a CAC in real cost: the ratio is wrong by a factor equal to the margin.
- Taking the average lifetime without looking at the distribution: 20% of customers often account for 60% of LTV; those segments deserve their own target CAC.
- Forgetting returns, unpaid invoices and discounts, which reduce the real margin by 5 to 15% in e-commerce.
- Extrapolating a 3-year LTV from 6 months of history; in that case, use the 12-month LTV as a limit and revise it every quarter.
To track the figure over time, customer lifetime value is read by acquisition cohort in a dashboard connected to sales, as described in e-commerce KPIs.
How GreenRed helps
Rather than juggling several tools, GreenRed's return on investment module brings these metrics together in a single dashboard, compares them over time and tells you which actions come first. You can try it free, with no card, from the Pricing.
Frequently asked questions
What is the difference between LTV and CLV?
None in substance: LTV (lifetime value) and CLV (customer lifetime value) refer to the same customer lifetime value. Some authors reserve CLV for the discounted or predictive calculation, and LTV for the simple formula, but the distinction is not standardised. What matters is stating whether the value is expressed in margin or in revenue.
What LTV / CAC ratio should you aim for?
The common rule is a ratio above 3: a customer brings in at least three times what they cost to acquire. Below 2, the model is fragile; above 5, the business can generally increase its acquisition budgets. The ratio should be checked channel by channel, because the LTV of customers coming from TikTok and from LinkedIn often differs.
Can you calculate an LTV with no customer history?
Not reliably. Use a cautious assumption (LTV equal to 1.5 times the margin on the first purchase) and replace it with a cohort measurement as soon as you have six months of history. Published sector averages give an order of magnitude, but the gap between two shops in the same sector commonly reaches a factor of three.
How do you send customer value to the advertising platforms?
By sending the value of each purchase through the pixel and the conversions API, then switching on value optimisation in Meta Ads Manager. For LTV itself, import a customer list segmented by value (custom audience) and create a lookalike audience from the high-value segment.