Struggling with the cost of conversion?
Having trouble understanding how to scale?
Then it’s time to dive into an important and increasingly "trendy" metric in business and marketing - LTV (customer lifetime value).
LTV represents the financial value of a customer over their entire relationship with the company.
There’s some flexibility in how this value is calculated depending on marketing goals:
- Some calculate it as gross revenue generated from a customer;
- Others calculate it as net profit earned from that customer.
In simple terms, LTV is the monetary value of orders received from a customer over their lifetime.
We usually focus on gross revenue, as the cost of customer acquisition can easily be calculated through Google Ads.
LTV calculation periods in marketing:
- over the lifetime of the customer;
- for a specific period of time.
The choice of period depends on the marketing analysis goals. We base our decisions on the following factors:
👉 Short customer lifetime: If each additional transaction doesn’t require marketing spend, it’s best to analyze LTV over the customer’s entire lifetime;
👉 Regular customer purchases: If each transaction requires financial investment and the customer’s lifetime exceeds one quarter, it makes sense to analyze LTV for a specific time frame.
Why has LTV become so important in digital marketing?
➊ The need to understand the financial efficiency of each marketing channel and overall digital marketing performance;
➋ Increased competition and the pressure to achieve optimal conversion rates without clear development paths;
➌ Availability of user-level analytics.
In other words, businesses need to know how many orders and how much revenue they generate from each customer, as well as how much it costs to acquire that customer. This provides insights into financial efficiency based on the average customer.
Without this data, scaling becomes difficult as you lack the necessary information to adjust your marketing strategy. So, let’s discuss how to calculate LTV. Here’s one way to do it using Google Analytics.
LTV in Google Analytics
Google Analytics doesn’t have a built-in LTV metric, but it can be calculated manually. The formula for calculating LTV is:
LTV = Total revenue from customers with transactions > 0 / Number of customers with transactions > 0
What do you need to calculate LTV?
- Segment of customers with transactions > 0. We discussed how to work with segments in our previous article about segments and audiences in Google Analytics;
- Working with Client ID data.
Client ID is the system used to track user data over the lifetime of their cookies.
Google Analytics collects user data, trying to stitch together their activity across different devices, tracking everything from session counts to completed orders.
You can find user-level data by Client ID in Google Analytics here:
If you view the report for each user, you can see their history of visits, interactions with ad campaigns, orders, and more.
Data is collected on each user individually.
To calculate LTV, export the report on customers and perform calculations using the formula mentioned above. The rest depends on your business logic and processes.
For example, in one project we gathered the following data:
LTV data example:
- For every 100 customers, we receive 118 orders.
- Each customer who places an order generates nearly 18,000 units of revenue.
- Almost 13% of customers place more than one order.
Of course, the data sample should be large enough to ensure accuracy.
Lastly, it’s important to be aware of the nuances and limitations of working with Google Analytics:
- Reports may lag for datasets with more than 5,000 customers.
- You can’t export Client ID data for periods longer than 90 days - that’s the limit.
For this reason, we recommend maintaining a customer and order tracking system, where LTV can be calculated for any period of time.
We hope this article has been informative for you. In fact, we’re proud to be the first in Ukraine to publish such detailed material on calculating LTV in Google Analytics.
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