The sum is your average sale, multiplied by how many times a year a customer buys, multiplied by how many years they stay. For the version that pays for ads, multiply once more by your gross margin.
Why is the first sale only the price of the introduction?
Owners judge an ad by the first sale. "I paid $50 for a click and got an $85 groom, so after the product I lost money." If that customer comes back every 8 weeks for 3 years, the $50 bought $1,650, and it was the best money spent that month. The first sale is the price of the introduction. Lifetime value is what the introduction is worth.
It cuts the other way too. A removalist's customer moves once. Lifetime value is the first job, so the cost of winning a customer has to fit inside the margin on one job, and the ad budget that works for the groomer bankrupts the removalist. Work out your lifetime value before you spend a dollar on ads.
What is a dog groomer's regular worth over three years? (example figures)
A dog groomer charges $85 a visit. A regular comes every 8 weeks, about 6.5 visits a year, and stays about 3 years.
| Sum | Result | |
|---|---|---|
| Revenue a year | $85 × 6.5 | $552 |
| Lifetime revenue | $552 × 3 | $1,657 |
| Gross margin | 55 percent after the groomer's time and products | |
| Lifetime margin | $1,657 × 0.55 | $911 |
So a new regular is worth about $911 in margin. Spending $150 to win one pays back inside the first four visits. Spending $500 still pays, but it takes 11 months, and the groomer needs the cash to wait that long. That waiting time is the payback period, and it is the second number to know before you set an ad budget.
If you do not have the data, answer three questions from memory: what does a customer spend on a visit, how often do they come, and how long do they stay. A rough lifetime value beats no lifetime value, and it gets better each month the numbers are read.
Where do the numbers come from?
A shop finds them in Shopify's customer report: orders per customer, and the time between the first order and the last. A service business finds them in the booking system or in the invoices in Xero. Count the customers who came once and never returned as well as the regulars, because the average that matters includes them, and it is lower than the regulars alone suggest. Failing all that, the three questions from memory, labelled as an estimate.
What does Cora do with your lifetime value?
In the onboarding call, Cora asks for your average sale and works out lifetime value from your answers, so Cora can judge what winning a new customer is worth before any ad spend is suggested. Once Google Ads and Meta are connected, the dashboard shows the last 7 days of cost per acquisition on each card, and that cost is read against the lifetime value, not against the first sale.
Questions
What is the difference between LTV and AOV?
Average order value is one sale. Lifetime value is every sale from one customer added up. AOV is a line in the LTV sum.
How do I work it out without any data?
Three questions: what a customer spends in a visit, how often they come back, and how many years they stay. Multiply the three. Label it an estimate and replace it when you have the numbers.
What is a good LTV to CAC ratio?
The rule of thumb that travels around is 3 to 1, and it comes from software companies with 80 percent margins. Use your own margin instead: a customer has to earn back their acquisition cost in margin, inside a time you can afford to wait.