Lifetime value captures what a customer is worth beyond their first purchase. A simple estimate multiplies average order value by purchase frequency and by the average customer lifespan. A more practical approach for advertisers is observed LTV: the actual revenue customers acquired in a period generated over the following 30, 90 or 365 days.
LTV becomes powerful when you break it down by acquisition channel. If customers from one campaign spend twice as much over a year as customers from another, you can afford to pay more to acquire them, even if their first-order ROAS looks the same. Compare LTV per lead with cost per lead to find your true allowable acquisition cost.