What is Customer Lifetime Value (LTV)?
Also known as: lifetime value, CLV, CLTV
Customer Lifetime Value (LTV) is the total gross profit a business expects to earn from a customer over the entire span of the relationship.
What is LTV?
LTV tells you how much a customer is worth, which sets the ceiling on what you can profitably spend to acquire one. Paired with CAC, it's the core test of whether your growth engine makes money.
How to calculate LTV
Worked example
ARPU is $200/mo, gross margin is 80%, and monthly churn is 2%. LTV = ($200 × 0.80) ÷ 0.02 = $8,000.
What's a good LTV?
LTV is most useful relative to CAC — a 3:1 LTV:CAC ratio or better is the common benchmark for a healthy business.
Frequently asked questions
Should LTV use revenue or gross profit?
Gross profit. Using revenue overstates LTV because it ignores the cost of serving the customer. Multiply ARPU by gross margin first.
Why does churn appear in the LTV formula?
Because 1 ÷ churn rate estimates the average customer lifetime. Lower churn means longer lifetimes and higher LTV — which is why retention is the biggest lever on LTV.