A simple LTV calculation multiplies average purchase value, purchase frequency, and average customer lifespan; more sophisticated predictive models use historical cohort data and machine learning to forecast LTV earlier in the customer relationship, before all the underlying behavior has actually played out.
LTV is the counterweight to CAC: a business with high LTV can afford to spend more to acquire customers (and can outbid competitors for the same audience), while a low or unclear LTV forces tighter acquisition budgets and a stronger reliance on immediate-conversion channels.