The total profit a customer is expected to generate over the full relationship, not just the first sale. It sets the ceiling on what you can afford to pay to acquire them.
When setting acquisition budgets and bid targets, choosing which segments to chase, and deciding how much to invest in retention.
A subscription box that loses money on the first order and profits by month four; a gym valuing members on average tenure; bidding higher for segments with stronger repeat rates; an LTV:CAC ratio of 3:1 or better as a common SaaS health check.
Foundational in every category with repeat purchase. Flagged when it is calculated on revenue instead of margin, or on hope instead of actual retention data.
