What is customer lifetime value?

Customer lifetime value (also known as LTV) takes the entire relationship into account: the first purchase, all subsequent purchases, and how long a customer stays with the brand. A single transaction tells us little about it, because a customer acquired at low cost who disappears after a single order is often worth less than someone who returns over the course of three years.

This metric has direct implications for evaluating channels. Customers who engage with the brand across multiple channels simultaneously - on the website, via email, through text messages, in a brick-and-mortar store, and in the app - are clearly worth more to the company than single-channel customers, with the difference reaching nearly one-third. The result, therefore, comes from the portfolio of channels, not from any single one.

This is the source of a common mistake in performance evaluation: a store looks at a single channel’s contribution to revenue and dismisses the very channel that was driving sales elsewhere. More meaningful metrics include purchase frequency, the proportion of repeat customers, and, most importantly, customer lifetime value.