LTVs

LTV is an acronym used in several fields with different meanings. In marketing and customer analytics, LTV typically refers to customer lifetime value, the forecasted net profit from a customer over the duration of their relationship with a business. In lending and real estate, LTV usually denotes loan-to-value ratio, the portion of a property's value that a lender will finance. Both uses relate to profitability and risk and rely on context-specific data.

For customer lifetime value, the aim is to estimate the revenue a customer will generate before churn. A common simple formula multiplies the gross margin per period by the number of purchases per year and by the expected lifespan of the relationship. For example, with an average order value of 50, a gross margin of 60 percent, four purchases per year, and a three-year relationship, LTV equals 50 × 0.60 × 4 × 3 = 360. In practice, models may discount future cash flows and subtract acquisition costs to obtain a net LTV (also called CLTV).

In lending, loan-to-value is calculated as loan amount divided by the asset’s appraised value or purchase price, whichever is lower. An LTV of 80% means the loan is 80% of value; higher LTVs raise risk and may require mortgage insurance or higher interest. Lenders also consider combined LTV when multiple liens exist. For example, a $320,000 loan on a $400,000 property yields an 80% LTV. LTV thresholds guide underwriting, pricing, and eligibility.

Understanding LTVs helps managers forecast profitability and allocate marketing efforts, while lenders use them to assess credit risk. Limitations include simplifying assumptions, data quality, and changes in customer behavior. See also CLTV and CAC.