How do I calculate ecommerce LTV?
Short answer: LTV = AOV × repeat purchase rate × gross margin × purchase cycles per customer lifetime. Most brands skip the gross-margin step.
Full answer
LTV calculation in DTC:
Simple form: LTV = AOV × annual purchases × estimated years retained.
Margin-adjusted: LTV = AOV × annual purchases × estimated years × gross margin.
Cohort-based (most accurate): take a customer cohort from 12+ months ago. Sum total revenue from that cohort. Divide by cohort size. Multiply by gross margin.
The number most brands report is unhelpful: AOV × annual purchases × 3 years × no margin = wildly overestimated. Margin-adjusted, cohort-based LTV is what unit economics actually run on.
For LTV-to-CAC analysis, use margin-adjusted LTV. A brand with $100 LTV at 30% margin spending $30 CAC is profitable; a brand with $100 LTV at 50% CAC at 20% margin is bleeding.