Customer lifetime value
The total profit one customer leaves you over the whole relationship, not what they pay on the first order.
Formula
LTV = average order value × number of purchases × contribution margin
A worked example (hypothetical numbers)
Say average order value is 400 EGP, a customer buys 3 times on average, and 25% of each order is left after product, shipping and fees. LTV = 400 × 3 × 25% = 300 EGP of profit. If CAC is 500 EGP the customer has not paid for themselves yet, even though their 1,200 EGP of revenue looks large.
The numbers are illustrative, only to show the arithmetic. They are not real results or market averages.
How to read it
- Count it from profit, not revenue: a customer who spent 1,200 EGP with you did not leave you 1,200 EGP.
- Take the number of purchases from your own data over a fixed period, a year for example, not from an optimistic guess.
- Compare it with CAC, but mind the timing: profit that arrives over a full year does not pay this month's rent.
The common mistake
Raising what you pay to win a customer on the strength of a lifetime value counted from revenue, or from a repeat rate nobody has evidence for. If customers do not return as expected, you paid more than will come back.