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Growth & Strategy

Customer Lifetime Value (LTV/CLV)

The total revenue a business can expect from a single customer account throughout their entire relationship.

Why It Matters

LTV tells you how much you can afford to spend acquiring customers while remaining profitable.

How It Works

The simplest formula is: Average Revenue Per User x Gross Margin x Average Customer Lifespan. More sophisticated models factor in expansion revenue, churn rates, discount rates, and cohort behavior.

Real-World Example

A SaaS customer pays $100/month with 80% margin and stays 30 months on average, yielding an LTV of $2,400.

Common Mistakes

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Calculating LTV without accounting for gross margin

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Using averages that mask wildly different customer segments

Related Terms

Customer Acquisition Cost (CAC)

The total cost of acquiring a new customer, including all marketing and sales expenses.

LTV:CAC Ratio

The ratio of customer lifetime value to customer acquisition cost, indicating the return on acquisition investment.

Churn Rate

The percentage of customers who stop using your product or cancel their subscription in a given period.

Customer Lifetime Value (LTV/CLV) FAQs

How do I increase LTV?

Reduce churn, upsell/cross-sell to existing customers, improve product stickiness, and deliver exceptional customer experience.

Should I calculate LTV by segment?

Yes, segmented LTV (by plan, channel, cohort, or persona) reveals which customers are most valuable and where to focus acquisition efforts.

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