What is Customer Lifetime Value (LTV), and how do you calculate it?
In short – Total revenue expected from a customer over their entire relationship with the marketplace. A key marketplace metrics you should track.
Customer Lifetime Value (LTV) Formula
LTV = Average Order Value × Purchase Frequency × Average Customer Lifespan
Customer Lifetime Value (LTV) estimates the total worth of a customer to the business over the entire period of their engagement. It helps in understanding the long-term value of customer relationships.
Comparing LTV with CAC can assess the profitability of acquiring new customers. A higher LTV indicates more revenue per customer, guiding investment in customer retention.
How can you find your Customer Lifetime Value (LTV)?
You should generally be able to calculate your Customer Lifetime Value (LTV) with tools you already posess. If that's not the case, signing up for an analytics tool may make sense.
Among others, twosided is one of the tools you could consider. Out-of-the-box, you'll get over two dozens marketplace KPIs and detailed tracking for your supply, demand and other factors that determine marketplace health.
Explore other metrics
Order Frequency
Average number of orders placed by a buyer within a specific period
Cross-Sell Rate
Percentage of transactions that include additional products or services
Supply-Demand Ratio
Ratio of available listings to active buyers
Listing Quality Score
A metric evaluating the quality of product listings based on predefined criteria
User Net Adds
Net increase in the number of users over a specific period