Let’s assume the following:
Profit generated by the customer each year = $1,000
Number of years that they are a customer of the brand = 5 years
Cost to acquire the customer = $2,000
The customer lifetime value of this customer would be:
$1,000 (annual profit from the customer) X 5 (number of years that they are a customer) less $2,000 (acquisition cost) = $3,000 = LTV.
That is, $1,000 X 5 – $2,000 = $3,000.