Lifetime Value: The gross profit accrued over the entire lifetime of a customer. This is gross profit multiplied by the number of purchases an average customer will make over their lifetime. Using the example above, if the average customer stays five months, and they pay $1,000/mo while it costs me $100 per month to fulfill, then their lifetime value is $4,500. Here’s the breakdown: Revenue: ($1,000/mo * 90% Gross Margin * 5 months) = $4,500 Lifetime Value (LTV) Note that the indirect costs, like admin, software, rent, etc., are not included in LTV.
