A simple formula
LTV = profit on one order × orders in a year × number of years the customer stays.
Use profit, not sales. A customer who spends ₹10,000 but costs you ₹9,500 to serve is not worth much. If you only have sales numbers, say so, and call it lifetime revenue.
A made-up example in rupees
Say a tailoring shop has regular customers. This is a made-up example.
- Average bill: ₹2,500.
- Profit on each bill: 40 per cent, which is ₹1,000.
- Visits in a year: 3.
- Years a customer stays: 4.
LTV = ₹1,000 × 3 × 4 = ₹12,000 of profit for each customer.
If it costs the shop ₹3,000 to win a new customer through ads and offers, it makes ₹9,000 after that cost. If it only costs ₹1,500 to bring someone back, repeat selling is cheaper than finding new buyers. Compare this with CAC.
How LTV works for an Indian business
Look at your own records. How many customers came back in a year? How long do they stay? A phone number saved with permission and a simple customer list in a sheet or CRM (customer relationship management tool) is enough to start. Businesses that sell on repeat, such as groceries, salons, coaching, spare parts or B2B (business to business) supplies, gain the most from knowing LTV.
If you know your LTV, you can set a sensible limit on ad spend per customer. You can also decide whether to give a welcome offer, a loyalty card or a dealer reward.
Common mistakes
- Using sales and not profit.
- Guessing how long customers stay, with no data.
- Using one average for all customers. A top buyer and a one-time buyer are very different.
- Forgetting that some customers never return.
- Never updating the number as prices and costs change.
One way to raise LTV is to stay in touch with past buyers. Read about retargeting, which brings past visitors back.
Related terms
- CAC: the cost to win one new customer.
- Retargeting: showing ads to people who already visited or bought.
- Dealer loyalty program: rewards that keep dealers buying from you.
To keep customers coming back, see our WhatsApp marketing work.
