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Apr 29, 2026
The LTV Playbook
The LTV Playbook
00:00
08:51
Transcript
0:00
Welcome back. Last week, I framed the big question: What actually separates the brands that compound from the ones that plateau?
0:07
And the answer came back to what's happening inside of the customer file at the cohort level after the first order. This week, I wanna get inside the metric that makes that legible, LTV.
0:19
Specifically, why most teams are defining it wrong and what happens to your decision-making once you define it correctly.
0:25
[upbeat music] Hi, I'm Alex Orley, and this is Hard Margins, your weekly ecommerce brief, brought to you by RetentionX.
0:37
[upbeat music] RetentionX is the only integrated growth platform built specifically for Shopify businesses.
0:48
Think one clean source of truth for your customer data and all the tools to act on it, no data team required.
0:55
Today, we're going deep on customer lifetime value, how to define it properly, how to think about it as a payback problem, and how it changes the way you allocate budget once you're actually steering with LTV.
1:05
A lot of brands are still making growth decisions the same way they did a decade ago, incurring everything on customer acquisition cost and ROAS, and treating those two numbers as the primary signal of whether things are working in their business.
1:19
To be clear, both metrics are necessary. The problem is that they're dangerously incomplete once you're trying to build something that compounds.
1:27
The customer acquisition cost tells you what you paid to get a customer to buy once. The return on ad spend tells you what happened on that first order.
1:36
Neither one of those KPIs tells you anything meaningful about what the customer subsequently does in the three, six, nine, twelve months after that first purchase, and that's where most of the value or destruction actually lives.
1:49
Here's the practical consequence of over-relying on those metrics. Two acquisition channels can have identical customer acquisition cost and ROAS and still produce radically different LTV, margins, and repeat behavior.
2:03
If the CAC and ROAS are the only two dials you're watching, you'd happily scale the channel that looks efficient today, not realizing you're filling your customer file with discount-dependent, low-repeat buyers who make the business progressively harder to run.
2:20
The shift that separates the brands that break out past a hundred million looks like this. They're not just asking how a campaign or an ad performed this week.
2:30
They're asking what kind of customer that campaign generated for the subsequent twelve to twenty-four months. Those are fundamentally different questions, and they lead to fundamentally different outcomes and decisions.
2:45
LTV gets talked about like it's a complex or theoretical number, but in practice it's a straightforward calculation that a lot of teams just define incorrectly.
2:54
For a direct-to-consumer brand, LTV should mean the total net revenue from a customer over a defined time window, twelve or twenty-four months is generally the most useful, minus your product cost, your variable operating expenses like shipping, payment fees, 3PL pick and pack fees, minus discounts and returns.
3:13
What's left after all of that is your contribution margin. That's the money that actually helps pay for fixed costs, salaries, and eventually profit.
3:22
Once you define LTV that way, as a profit-based number as opposed to a revenue-based number, it stops being a slide in the investor deck and starts being a readable map of where your best and worst customer economics actually live.
3:36
You can ask what your LTV looks like after six, twelve, or twenty-four months by channel, by the first product a customer purchased, by country, by region, by the discount code or welcome offer they came in on.
3:48
Each of those cuts tells you something actionable about the quality of the customers you're acquiring and where to focus your energy.
3:55
Of all the ways to frame LTV, the one I find most operationally useful is the payback curve. You invest your CAC on day zero.
4:03
You recover some of that cost on the first order, and then repeat orders, slowly or quickly depending on the quality of the cohort, pay back the rest.
4:12
The questions that matter here are: How long does it typically take a customer to pay back their acquisition cost in contribution margin? How much margin do you generate after that crossover point?
4:23
And how different is that answer by channel, by campaign, by acquisition product, and by country? Those differences are usually significant, and they're almost always invisible if you're not looking for them.
4:36
The rough industry benchmark is a three-to-one LTV to CAC ratio over a given time horizon.
4:42
So if your twelve-month LTV in contribution margin terms is a hundred and eighty dollars, you're comfortable spending up to sixty to acquire that customer.
4:51
But if a particular channel only ever delivers ninety dollars in twelve-month LTV, that same sixty dollar customer acquisition cost is a very different proposition. The number hasn't changed. The context has.
5:04
That's the shift that payback framing creates.
5:07
You stop debating whether a given customer acquisition cost is good or bad in the abstract and start asking whether this specific cohort's twelve-month contribution margin justifies what you paid to acquire them.
5:19
Here's what changes once you have LTV and payback data segmented properly. Your channels are no longer just good or bad. They're investable or non-investable based on their LTV to CAC ratio.
5:31
Consider a scenario where TikTok shows an eighteen dollar customer acquisition cost against a twelve-month LTV of thirty-two dollars.
5:39
That's a one point eight X ratio, and it's destroying value regardless of how clean the ROAS looks in platform.
5:48
Google Ads at a fifty-five dollar customer acquisition cost against a one hundred and eighty-seven dollar LTV is a three point four X ratio, and that's generating real return.
5:59
Referral at a sixty-seven dollar CAC against a three hundred and eighty-four dollar LTV is a five point seven X ratio and is arguably underfunded.The platform metrics would never surface that picture, but LTV does.
6:14
The same logic applies to discounts, which stop being a conversion lever and become a cost you measure against any actual lift in LTV.
6:21
It applies to new products which either increase repeat behavior and product LTV or they don't, and that answer matters more than whether they're simply exciting at launch.
6:32
In practice, steering with LTV means putting more budget behind channels with slightly higher CAC, but strong LTV to CAC ratios, pulling back from channels with attractive ROAS but weak cohorts, and giving better real estate to products that create high LTV customers.
6:48
Similarly, placing tighter guardrails on promotions that pull in the wrong kind of buyer, regardless of how well they perform in platform. That's the difference between spending a budget and allocating your capital.
7:00
If you want to move towards this without overhauling everything at once, the starting point is simpler than most teams make it. First, agree on a single LTV definition internally.
7:10
Net revenue minus COGS, minus variable operating costs, minus discounts and returns over 12 months. Write it down. Align the whole team to it.
7:20
The number of organizations running vague or inconsistent LTV conversations is enormous, and it's expensive. Second, pick two or three segments where LTV is most likely to differ.
7:31
For most brands, that's by acquisition channel, by first product purchased, and by country or region. Even a rough cut on these dimensions will typically surface large, meaningful gaps.
7:41
Third, build a basic payback view for each of these segments. What's the average CAC? How much contribution margin is recovered on the first order? And when does cumulative CM1 cross the CAC line?
7:53
If you can't get to that answer easily from your current setup, that's a signal worth paying attention to. You are making seven-figure budget decisions with a blurry dashboard.
8:03
The core idea here is that LTV is not a finance metric, it's an operating tool.
8:08
When it's defined correctly and segmented properly, it changes what questions you ask, which channels you scale, how you think about promotions, and how you evaluate your product portfolio.
8:18
The brands that have internalized this aren't smarter or better resourced than the ones that haven't. They're just asking a more complete set of questions. [upbeat music] Thanks for listening. I'm Alex Orly.
8:32
This has been Hard Margins, brought to you by RetentionX. I will see you right here next week.
8:38
[upbeat music]
Hard Margins
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