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Customer Lifetime Value

The gross profit you expect from a customer over the whole relationship.

Tech Entrepreneur · Product-Market Fit · core

Also known as: customer lifetime value, LTV, CLV, lifetime value

Customer Lifetime Value (LTV) is the gross profit a customer generates across the whole relationship: average revenue × gross margin × expected lifetime (roughly 1 ÷ churn rate for subscription shapes). It sets every acquisition budget — spendable CAC, payable payback, viable channels all derive from LTV.

e.g. $50/mo × 80% margin ÷ 5% monthly churn = $800 LTV (20-month expected life)
use:  CAC ≤ LTV/3-ish (rule of thumb, segment-dependent) · payback from monthly margin

LTV is an estimate built on retention assumptions, not a fact — and retention is the load-bearing one. A churn shift from 5% to 7% cuts lifetime nearly a third; LTV models deserve sensitivity ranges, not point values.

The classic mistakes:

Churn-blind LTV. Computing lifetime from early, best-cohort retention while actuals decay. Use mature-cohort churn by segment, refreshed quarterly — LTV rots silently otherwise.
Gross revenue as value. Multiplying ARPU without margin overstates brutally for low-margin businesses (marketplaces, fintech flows). Gross profit, always.
Infinite-horizon math. 1/churn assumes constant hazard forever; real curves flatten (good) or businesses change. Cap horizons explicitly for planning sanity.
One LTV for all segments. Enterprise and SMB lifetimes differ by multiples. Segment LTV drives segment CAC budgets — blended LTV misallocates both.
LTV justifying any CAC today. Future value does not pay today’s salaries. Pair LTV with payback period — value and timing decide spendable acquisition cost.

Recompute quarterly by segment, with churn, margin and horizon stated. LTV is the ceiling over acquisition strategy — see LTV:CAC for the ratio that rules growth spending.