LTV
Also: LTV, CLV, CLTV, Customer Lifetime Value, Lifetime Value, Valeur vie client, Valeur a vie du client
Lifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.
What it is
LTV (Lifetime Value), sometimes written CLV or CLTV (Customer Lifetime Value), is the total economic value a customer brings across the full duration of their relationship with a company. It aggregates every purchase, subscription renewal, or upsell, minus (in profit-based versions) the cost to serve that customer.
There are two common flavors:
- Revenue LTV: total revenue a customer generates. This matches the tooltip meaning.
- Margin (or profit) LTV: revenue adjusted for gross margin and cost to serve, which finance teams usually prefer.
Why it matters
LTV turns a customer from a single transaction into a long-term asset. It answers a strategic question: how much is a customer actually worth over time?
- It sets the ceiling on acquisition spend: you should not pay more to acquire a customer than they are worth.
- It exposes retention leverage: small changes in churn or repeat rate compound heavily.
- It aligns marketing, finance, and product on the same value metric.
How it is used in practice
The most-watched application is the LTV:CAC ratio, comparing lifetime value to Customer Acquisition Cost.
- LTV:CAC around 3:1 is a common healthy benchmark for subscription businesses.
- Below 1:1 means you lose money on every customer acquired.
- Very high (5:1+) may signal underinvestment in growth.
A simple recurring-revenue formula:
LTV = (ARPA x Gross Margin) / Churn Rate
where ARPA is average revenue per account and churn is the periodic cancellation rate.
A concrete worked example
A SaaS company observes:
- ARPA: $100 per month
- Gross margin: 80%
- Monthly churn: 5% (so average lifespan = 1 / 0.05 = 20 months)
Calculation:
- Monthly contribution = $100 x 0.80 = $80
- LTV = $80 / 0.05 = $1,600
If CAC is $400, then LTV:CAC = 1,600 / 400 = 4:1, which is strong and suggests room to scale acquisition.
Common pitfalls
- Mixing revenue and margin definitions across teams, making numbers non-comparable.
- Ignoring discount rates: future cash is worth less today, so mature models discount it.
- Assuming constant churn when it usually varies by cohort and tenure.
- Overfitting predictive LTV models on thin historical data.
See also
Frequently asked questions
What does LTV mean?
LTV (Lifetime Value), also written CLV or CLTV, is the total economic value a customer brings over the entire duration of their relationship with a company. It adds up every purchase, renewal and upsell, and in profit-based versions subtracts the cost to serve that customer. It turns a customer from a one-off transaction into a long-term asset.
What is the difference between revenue LTV and margin LTV?
Revenue LTV counts all the revenue a customer generates; margin LTV adjusts that revenue for gross margin and cost to serve. Finance teams usually prefer the margin version because it reflects what actually reaches the bottom line. The main risk is mixing the two definitions across marketing and finance, which makes the numbers non-comparable.
How do you calculate LTV for a subscription business?
A simple recurring-revenue formula is LTV = (ARPA x gross margin) / churn rate, where ARPA is average revenue per account and churn is the periodic cancellation rate. The inverse of churn gives the average customer lifespan: 5% monthly churn implies 20 months. This formula assumes churn stays constant, which is rarely true across cohorts and tenure.
What is a healthy LTV:CAC ratio?
Around 3:1 is the benchmark commonly cited for subscription businesses: a customer is worth roughly three times what it costs to acquire them. Below 1:1 you lose money on every customer acquired. Above 5:1 the signal flips: the ratio may reveal underinvestment in growth rather than excellence.
Can you walk through a numerical LTV example?
Take a SaaS company with ARPA of $100 per month, 80% gross margin and 5% monthly churn. Monthly contribution is $100 x 0.80 = $80, and LTV = $80 / 0.05 = $1,600. With a CAC of $400, LTV:CAC comes out at 4:1, a strong ratio that suggests room to scale acquisition.