Glossary / LTV
LTV(Customer Lifetime Value)
Customer lifetime value (LTV) is the total revenue a business expects to generate from a single customer over the entire customer relationship. LTV is calculated as average revenue per customer divided by customer churn rate. LTV measures how valuable each customer is and pairs with CAC to show whether growth is profitable.
Formula
LTV = Average revenue per customer / Customer churn rate (per period)
Example
If average revenue per customer is $100/month and monthly churn is 5%, LTV is $2,000 ($100 / 0.05). If churn drops to 3%, LTV jumps to $3,333 — the same customer is now 67% more valuable.
Why it matters
LTV determines how much you can afford to spend acquiring customers. With $2,000 LTV, spending $500 to acquire each customer (CAC) yields a 4:1 ratio — typically healthy. Without LTV, CAC alone is meaningless.
Frequently asked
What's the difference between LTV and gross LTV?
Gross LTV uses revenue. Contribution-margin LTV (also called net LTV) uses revenue minus cost of goods sold and customer support costs. The latter is more accurate but harder to compute. Most SaaS startups track gross LTV first.
How long does it take to know LTV accurately?
For a new product, LTV estimates are noisy until 12-24 months of cohort data exists. Early-stage estimates use median-customer behavior or comparable benchmarks.
Related terms
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