How is LTV calculated for a given channel using AOV and purchase frequency?

• A. LTV = AOV x CAC
• B. LTV = AOV x Purchase frequency
• C. LTV = AOV + Purchase frequency
• D. LTV = CAC / AOV

Answer: (B)

The main idea is that LTV for a channel reflects how much revenue a typical customer generates from that channel, based on how much they spend per order and how often they place orders. Average order value (AOV) tells you how much revenue you get from a single purchase, while purchase frequency tells you how many purchases a customer makes on average. Multiply these together to get the average revenue per customer from that channel over a given period, which is the LTV in this context.

If you want to push this further, you could refine LTV by including margins to turn revenue into profit, or extend the period to reflect lifetime value across the customer’s entire relationship. The other options aren’t correct here because they mix in acquisition costs (CAC), use addition instead of multiplication, or divide rather than multiply, which doesn’t capture how repeat purchases scale revenue.