Question 1

How does LTV differ for e-commerce vs SaaS?

Accepted Answer

For SaaS, LTV is straightforward: monthly recurring revenue divided by churn rate. For e-commerce, there's no subscription — LTV must be calculated from purchase history data. E-commerce LTV = Average Order Value × Purchase Frequency × Average Customer Lifespan. Because there's no committed recurring revenue, e-commerce LTV estimates are inherently less certain and require at least 1-2 years of cohort data to be reliable.

Question 2

How do I calculate e-commerce LTV?

Accepted Answer

Segment customers by acquisition cohort (e.g., everyone who first purchased in Q1 2022). Track their cumulative revenue per month over time. Plot the cohort's average cumulative revenue curve — this shows how LTV builds over time. The asymptote (where the curve flattens) represents the steady-state LTV for that cohort. Project forward based on retention curves. Most e-commerce businesses use 12-month or 24-month LTV as the practical metric.

Question 3

What is a healthy LTV:CAC ratio for DTC brands?

Accepted Answer

For DTC e-commerce, a 3:1 LTV:CAC ratio (same as SaaS) is a common target, but the practical benchmark is more nuanced. A CAC payback period under 6 months is generally considered strong — if you recover your acquisition cost within 6 months, the business can scale more aggressively without requiring massive capital. CAC payback periods of 12-18 months are manageable; 18+ months is capital-intensive and risky without venture backing.

Question 4

How do I improve LTV for e-commerce?

Accepted Answer

LTV improvement strategies: Increase purchase frequency through email/SMS marketing, loyalty programs, and subscription offers. Increase average order value through upsells, cross-sells, and bundles. Extend customer lifespan through excellent post-purchase experience and product quality. Reduce churn by understanding why customers don't repurchase (exit surveys, reviews analysis). Even a 10% improvement in purchase frequency can have outsized LTV impact through compounding.

Question 5

How do I present LTV:CAC to investors?

Accepted Answer

Show LTV and CAC as a grouped bar chart for each acquisition year or channel — this reveals whether unit economics are improving. Pair with a CAC payback curve showing how quickly acquisition cost is recovered. Include your LTV methodology clearly: what cohorts, what time horizon, what assumptions about churn. Investors will probe the LTV number aggressively — defensible, conservatively stated LTV with clean cohort data is far more compelling than optimistic projections.

Customer LTV vs CAC Chart

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FAQ: Customer LTV vs CAC Chart