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. This metric helps businesses understand key operational efficiencies, areas for improvement, and strategic opportunities to drive growth and user engagement.
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
Net Promoter Score (NPS)
A measure of customer loyalty and satisfaction based on user feedback.
Average Order Value (AOV)
The average value of orders placed on the platform.
Supplier Lifetime Value (SLV)
The projected revenue generated by a supplier over their tenure on the platform.
Repeat Purchase Ratio
The proportion of customers who make repeat purchases over a given period.
Customer Lifetime Value (CLV)
The projected revenue a customer will generate during their relationship with the business.