Marketing and retention

D2C metrics explained: AOV, CAC, LTV, repeat rate and contribution margin

The handful of numbers every D2C founder should track, with formulas, a worked example and how they connect to decide how much you can spend to win a customer.

By Orvexa TeamUpdated 7 October 20263 min read

A crowded market street during Navratri — Photo: Iamdeepaksingh, CC0 · All photo credits

Key takeaways

Track AOV, conversion, CAC, repeat rate, LTV and contribution margin monthly
Lifetime value depends mostly on how many customers come back
Compare LTV with CAC on a contribution basis, not on revenue

Dashboards can show hundreds of numbers. A small brand needs six. Learn what they mean and how they connect.

The six numbers

1. Conversion rate = orders ÷ sessions. Shows how well your store turns visitors into buyers.

2. Average order value (AOV) = revenue ÷ orders. Raised by bundles, thresholds and cross-sells.

3. Customer acquisition cost (CAC) = marketing and sales spend ÷ new customers acquired. Use a consistent period and include creator fees and agency costs.

4. Repeat purchase rate = customers with 2 or more orders ÷ all customers (over a stated period).

5. Customer lifetime value (LTV) = average contribution margin per order × average number of orders per customer over their lifetime. Use contribution, not revenue, so that costs are included (cost per order).

6. Contribution margin = revenue minus the variable costs of an order (product, shipping, fees, returns) and discounts.

A worked example (illustrative)

AOV ₹1,400; contribution margin per order ₹560 (40%).
Customers place 1.6 orders on average over 12 months.
12-month LTV = ₹560 × 1.6 = ₹896.
CAC = ₹450.

LTV to CAC is about 2 to 1. After the first order alone, you have earned ₹560 against ₹450 of acquisition, which is already profitable. If your first order contributes less than CAC, you rely on repeat purchases to recover the cost, so cash needs to cover the gap.

Payback period

Payback = CAC ÷ contribution per order, adjusted for how quickly customers reorder. If CAC is ₹450 and contribution per order ₹560, you recover your spend on the first order. If CAC were ₹900, you would need a second order, and you should check how many customers reach it.

What good looks like

People often quote a lifetime value of about three times CAC as a healthy benchmark, but it depends on your category, your margins, how fast you recover cash and your growth plans. Use it as a rough guide, not a rule. What matters is that you earn more from a customer than you spend winning them, and that you can fund the wait.

Levers

To improve	Try
Conversion	Faster pages, trust cues, fewer checkout steps (carts)
AOV	Bundles, free-shipping threshold, relevant add-ons
CAC	Better targeting, creators, referrals, organic search
Repeat rate	Great product, retention flows, loyalty (retention, loyalty)
Contribution margin	Pricing, sourcing, shipping, fewer returns (pricing)

Common mistakes

Using revenue instead of contribution to calculate LTV.
Blending new and returning customers in CAC, which makes it look better than it is.
Ignoring returns and COD failures in margin.
Looking at averages only. Segment by channel, product and city.
Measuring too soon. Repeat behaviour needs months to appear.

What to do next

Create a simple monthly sheet with the six numbers, split by channel where you can. Write one sentence each month on what changed and why.

Frequently asked questions

How do I calculate CAC if some customers come from organic search?

Calculate both: blended CAC (total spend ÷ all new customers) and paid CAC (paid spend ÷ customers from paid channels). Both are useful.

What time period should I use for LTV?

Choose a period that suits your product, such as 6 or 12 months, and use it consistently. Longer periods look better but are less certain.

Is a higher AOV always better?

Not if it lowers conversion or increases returns. Test changes and watch contribution per visitor, not AOV alone.

Topics:metricsaovcacltvunit economics