⚡ THE ESSENTIALS IN 20 SECONDS
- LTV (lifetime value) is what a customer brings you over the whole time they buy from you, not just the first order.
- It is calculated from average order value, purchase frequency, customer lifespan and margin.
- Repeat-purchase products (consumables) have an LTV far above their first sale.
- LTV lets you justify a higher ACOS to win new customers.
IN THIS ARTICLE
On marketplaces, campaigns are almost always judged on the first sale. But if you sell coffee, pet food or skincare, customers come back. That is where LTV comes in: the metric that tells you what a customer is really worth.
LTV (Lifetime Value): the total value, usually in margin, a customer generates over their whole relationship with your brand.
How to calculate it (simple version)
A practical formula: LTV = average order value × orders per year × years as a customer × margin.
| Variable | Fictional example |
|---|---|
| Average order value | USD 25 |
| Orders per year | 5 |
| Years as a customer | 2 |
| Contribution margin | 30% |
| LTV in margin | USD 75 |
That customer is not worth 7.50 dollars of margin (the first order): they are worth 75.
Why it matters in retail media
If a new customer is worth 75 dollars of margin over two years, you can accept losing a little on the first sale to win them. That is why new-to-brand metrics and repeat rate matter so much in consumer categories.
Where it matters less
- One-off purchases (a mattress, a TV): LTV looks like the first sale.
- Brands without repeat data: marketplaces do not always show who comes back, so use conservative estimates.
- Highly price-competitive categories: customers may not be loyal.
How to use it in your strategy
- Identify your repeat-purchase products.
- Estimate LTV with conservative assumptions.
- Decide how much you can spend to acquire a new customer (CAC) without exceeding LTV.
- Use Subscribe & Save, remarketing and bundles to raise purchase frequency.
LTV and CAC: the rule I use
LTV only makes sense next to CAC (customer acquisition cost). If a new customer costs 12 dollars and their LTV in margin is 75, the ratio is about 6 to 1: you can invest with confidence. If CAC gets close to LTV, you are buying customers who leave you nothing.
| LTV : CAC ratio | Reading |
|---|---|
| Below 1 : 1 | You lose money on every new customer |
| 1 : 1 to 3 : 1 | Caution zone; review margins and retention |
| Above 3 : 1 | Healthy; you can invest more in acquisition |
These ranges are a practical guide, not a law: adjust them to your cash flow and how fast you recover the investment.
How to raise LTV without spending more on ads
- Bundles and larger sizes: raise average order value.
- Subscriptions: on Amazon, Subscribe & Save increases purchase frequency.
- Post-purchase content: instructions and inserts that invite repeat purchases.
- Good reviews: a product that delivers creates customers who come back.
How to estimate LTV when the marketplace gives you no data
Marketplaces do not always show who buys again. You can still estimate it: use the repeat rate from your own store or reviews, subscription data if you have it, or customer surveys. When you have nothing, use a conservative assumption (for example, 2 orders a year for 1 year) and adjust it when real data arrives. On Amazon, Brand Analytics and Amazon Marketing Cloud help you understand repeat behavior.
- Use margin, not revenue, to calculate LTV.
- Start with conservative assumptions.
- Review it every 6 months with new data.
- Share the assumptions with finance so everyone uses the same number.
A quick LTV example by category
| Category (fictional) | First-order margin | Estimated 2-year LTV | Can you spend more on acquisition? |
|---|---|---|---|
| Coffee pods | USD 6 | USD 60 | Yes, clearly |
| Skincare serum | USD 9 | USD 45 | Yes, with care |
| Kitchen appliance | USD 25 | USD 30 | Barely |
| TV | USD 60 | USD 60 | No: one-off purchase |
The pattern is clear: the more often people re-buy, the more a new customer is worth beyond the first sale.
Agency secrets about LTV
What I apply in repeat-purchase categories:
What you pay for a new customer is not measured like what you pay for a returning one.
An inflated LTV justifies any spend. Better to under-estimate and keep a safety margin.
“This customer cost us 12 and brings 75 over two years” lands better than any ROAS.
In consumer goods, brands that understand their LTV invest confidently in new customers while competitors fight only over today’s ACOS.
I’m Alonso Jiménez, a Retail Media account director. I manage campaigns on Amazon, Walmart, Target, Instacart and Mercado Libre every day, for brands in the US, Mexico and Latin America. New to the field? Start with what Retail Media is.
Frequently asked questions
What does LTV mean?
Lifetime Value: what a customer brings you over their whole relationship with your brand.
How do you calculate LTV?
A simple version: average order value × orders per year × years as a customer × contribution margin.
How does it relate to CAC?
CAC is what it costs to win a customer; it should be well below LTV.
Does it work on marketplaces?
Yes, especially for repeat-purchase products, with conservative assumptions because customer data is limited.