01
AOV (average order value)
Total revenue / total orders. Raise via bundles, free-shipping thresholds, post-purchase upsells. See our AOV calculator.
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§ · journal
Contribution LTV is the LTV that matters.
Revenue LTV inflates every CAC ratio in DTC. Contribution LTV is what actually funds the next customer. The formulas, the gap between them, and the CAC ratios both produce.
§ 01 · TL;DR
Revenue LTV flatters. Contribution LTV decides.
Revenue LTV is the total revenue a customer generates across their relationship with a brand. Contribution LTV is the contribution margin — revenue minus variable costs (COGS, shipping, payment fees, packaging) — that the customer generates. For a DTC brand with 40 percent contribution margin, contribution LTV is 60 percent lower than revenue LTV; a customer worth $300 in revenue is worth $120 in contribution. Every CAC ratio and growth decision should be anchored to contribution LTV, not revenue LTV, because only contribution margin actually funds the next customer. Brands that scale acquisition on revenue LTV numbers routinely discover an over-spend problem 12 to 18 months in.
§ 02 · a worked example
One customer. Two numbers.
A skincare brand with AOV of $75, contribution margin of 40 percent, 2.5 orders per customer per year, and a 3-year average lifespan. Purchases per customer: 7.5. Revenue per customer: $75 × 7.5 = $563 revenue LTV. Contribution per customer: $75 × 40% × 7.5 = $225 contribution LTV.
at $80 blended CAC
revenue LTV ratio
$563 ÷ $80 = 7.0:1
"Scale aggressively"
contribution LTV ratio
$225 ÷ $80 = 2.8:1
"Scale carefully; margin is thin"
Two very different stories. The revenue-LTV story says the brand can afford to double CAC and still clear a healthy ratio. The contribution-LTV story says the brand is already near the minimum acceptable ratio; any CAC inflation pushes it underwater. The second story is the one the cash position will actually prove out.
§ 03 · the four inputs
AOV × margin × frequency × lifespan.
Contribution LTV decomposes into four independent inputs. Each is separately measurable and each has its own levers. Understanding which input is the constraint tells you where to invest.
02
Contribution margin %
(Revenue − COGS − shipping − fees) / revenue. Raise via COGS negotiation, shipping-carrier negotiation, threshold-based shipping.
03
Purchase frequency
Total orders / unique customers (annual). Raise via email flows, SMS, subscription enrollment, replenishment reminders.
04
Expected lifespan
Measured from cohort-retention curves. Raise via retention programs, loyalty, win-back campaigns. The input most brands measure poorly.
§ 04 · questions
Five answers.
What is the difference between contribution LTV and revenue LTV?
Revenue LTV is the total revenue a customer generates over their full relationship with the brand; AOV times purchase frequency times lifespan. Contribution LTV is the contribution margin (revenue minus variable costs: COGS, shipping, payment fees, packaging) multiplied by the same frequency and lifespan. For a typical DTC brand with 40 percent contribution margin, contribution LTV is 60 percent lower than revenue LTV. A customer worth $300 in revenue LTV is worth $120 in contribution LTV. The CAC the brand can actually afford is bounded by contribution LTV, not revenue LTV, which is why revenue-LTV-based CAC ratios consistently flatter reality.
How do I calculate contribution LTV?
Four inputs. Average order value (AOV): total revenue divided by total orders. Contribution margin percent: (revenue minus COGS minus per-order variable costs) divided by revenue. Purchase frequency: total orders divided by unique customers in the period. Expected lifespan: how many months or years the average customer remains active; typically estimated from cohort retention curves or industry benchmark (24 to 36 months for DTC). Contribution LTV equals AOV times contribution-margin-percent times frequency-per-year times lifespan-years. A brand with 75 dollar AOV, 40 percent contribution margin, 2.5 orders per year, 3-year lifespan has contribution LTV of 225 dollars.
Why does revenue LTV mislead growth decisions?
Revenue LTV assumes every dollar of lifetime revenue is available to fund acquisition, which is false. A brand with 300 dollar revenue LTV and 50 dollar CAC looks like a 6:1 ratio. But if contribution margin is 35 percent, actual contribution LTV is 105 dollars and the real ratio is 2.1:1 — a different business. The 6:1 number would justify scaling acquisition spend aggressively; the 2.1:1 number says scale carefully and fix the margin before adding spend. Founders making growth decisions on revenue LTV routinely overspend and discover the problem 12 to 18 months in when the cash position tightens.
What contribution-LTV-to-CAC ratio should I target?
Same standard 1:3 target that applies to revenue-based CAC ratios, except now the ratio actually holds. A contribution-LTV-to-CAC of 3:1 or better means each dollar of acquisition spend returns 3 dollars of actual margin over the customer's lifetime. 1:5+ is strong; scale acquisition aggressively. 1:1 or below is burning money. The major difference from revenue-LTV ratios: teams that were at 1:3 on revenue-LTV are usually at 1:1 to 1:1.5 on contribution-LTV, meaning scaling acquisition would compound losses, not revenue.
How does contribution LTV change under subscription?
Subscription models shift the math favorably on the lifespan dimension. A non-subscription customer with 2.5 orders per year and 3-year lifespan sees 7.5 purchases total. A subscription customer with monthly cadence and 18-month median retention sees 18 purchases. Contribution LTV on subscription is typically 2-3x the one-time-purchase equivalent for the same AOV and margin, which is why subscription-led brands can sustain higher CAC profitably. The compounding risk: subscription churn hits the lifespan dimension hardest; a brand that measures retention poorly overstates contribution LTV dramatically.
§ 05 · run the LTV math