Let's say hypothetically that you have the following:

Looking at 5 years worth of data, we have in one group:

$200 Avg. Order Value
1 Purchase Frequency (1 lifetime purchase)

Using the lifespan for all customers, they average 0.5 years.

So when we look at the 1-time purchasers, and apply:

AOV * PF * Lifespan


LTV = $200 * 1.0 * 0.5 = $100

How would it make sense to someone that the LTV for a 1 time purchaser is less than their average order value?

  • $\begingroup$ I think you have your formula mixed up; the purchase frequency should be purchase per year. (which multiplied by lifespan gives you number of purchases (throughout lifespan). so i think you want to reconsider your calculations (and decide what stays approx same - purchases per year, or purchases per lifetime)... $\endgroup$ – seanv507 Mar 8 '19 at 15:43

It makes sense because the AOV is per year and their lifetime is less than one year.

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