Margin LTV
Margin LTV is customer lifetime value computed on contribution margin instead of revenue. It is calculated as average order value × purchase frequency × customer lifespan × contribution margin %, and ecommerce operators use it to set a customer acquisition cost ceiling in dollars the business actually keeps.
| Variable | What it covers |
|---|---|
| AOV | Average order value - total revenue ÷ total orders. |
| Purchase frequency | Average orders per customer per year. |
| Customer lifespan | Average years a customer keeps buying before they lapse. |
| Contribution margin % | Use the pre-marketing rung of the step-down (CM2): revenue less landed COGS, fulfilment, shipping and payment fees. |
The margin rung matters. Use contribution margin before marketing, because the whole point is to weigh the customer's lifetime margin pool against the acquisition cost you are about to spend from it. Using CM3, which already subtracts ad spend, double counts acquisition.
Worked example
Example numbers. A A$150 CAC looks comfortable against a A$480 revenue LTV (3.2x) - but it consumes 78% of the A$192 the customer actually leaves behind. Same customer, opposite verdict.
What is a good margin LTV?
There is no benchmark figure, because margin LTV is a ceiling, not a score. It has to clear your blended CAC with enough left over to cover fixed costs and produce profit - and how much room that requires depends on your contribution margin structure, your category's repeat cycle, and how fast the margin arrives. A strong margin LTV that takes three years to pay back can still break cash flow, which is why it pairs with CAC payback. Compute your own ceiling with the free Margin LTV calculator.
Margin LTV vs related metrics
| Metric | What it measures | How it differs from margin LTV |
|---|---|---|
| Customer lifetime value (LTV) | Lifetime value, usually computed on revenue. | The common revenue-based version; margin LTV is the same idea after variable costs. |
| Contribution margin | Margin kept per order after variable costs. | Per order; margin LTV compounds it across every order in the relationship. |
| LTV:CAC ratio | Lifetime value per acquisition dollar. | Uses margin LTV as its honest numerator; without it the ratio flatters. |
| CAC payback | Months to recover acquisition cost from contribution. | Adds the clock: margin LTV says how much, payback says how fast. |
Common mistakes
- Using gross margin instead of contribution margin. Stopping at revenue less COGS misses fulfilment, shipping and payment fees, which take real points out of every order.
- Using post-marketing margin (CM3). Ad spend is already subtracted, so weighing that number against CAC double counts acquisition.
- One all-time average across cohorts. Old loyal cohorts inflate the figure; compute margin LTV per acquisition cohort so it describes the customers new spend actually buys.
- Forgetting returns. An order that comes back can be margin-negative after shipping both ways; margin LTV on gross orders overstates the pool. See return rate.
- Treating three-year margin as spendable today. Pair margin LTV with a payback window so lifetime economics never outrun the bank balance.
Margin LTV FAQ
Related
Blufire S4 Customer Value & Segmentation computes CLV margin-true for every customer, so the Financial Buckets and the margin-true RFM cube already rank your base by the dollars each customer really leaves behind. The Math teaches the full method free.
Updated July 2026