Skip to content
Log in
← Statistics glossary

LTV (customer lifetime value)

Also called: lifetime value, customer lifetime value, CLV

The total revenue (or profit) a business expects from one customer over the whole time they pay. A rough estimate: average monthly revenue per customer ÷ monthly churn.

LTV (customer lifetime value, also CLV) is the total revenue, or better, gross profit, that a business expects from one customer over the whole time they keep paying. For a subscription business the quick formula is LTV = average monthly revenue per customer ÷ monthly churn, because 1 ÷ churn is the average customer lifetime in months.

The profit version multiplies by gross margin: LTV = ARPA × gross margin ÷ churn. It is the one to compare with the cost of winning a customer, since a customer who pays 600 a month but costs 100 a month to serve is worth 500 a month to you, not 600.

LTV is an estimate built on averages, and it swings a lot with churn: halving churn doubles LTV. Its main uses are to set a ceiling on what you can afford to spend to win a customer (see CAC and the LTV:CAC ratio), and to show how much a small improvement in retention is worth. Treat it as a planning number, recalculate it as real data comes in, and be careful with young businesses: with only a few months of history, nobody has yet seen how long customers really stay.

Example

In October a GarageDesk shop pays 600 UAH a month and monthly churn is 3 / 58 ≈ 5.2%. The average shop stays 58 / 3 ≈ 19.3 months, and LTV = 600 / (3 / 58) = 600 × 58 / 3 = 11,600 UAH of revenue.

By March of year 2 churn is down to about 4% and new shops pay 750 UAH: LTV = 750 / 0.04 = 18,750 UAH. The higher price and the lower churn together raise the value of a new shop by more than half.

Common mistakes

  • Using revenue LTV against CAC. Compare CAC with gross-profit LTV; revenue overstates what a customer is worth.
  • Trusting LTV from three months of data. Early churn is noisy; a small change swings LTV a lot.
  • Averaging very different customers. Yearly and monthly customers, or small and large ones, deserve separate LTVs.
  • Spending the whole LTV on acquisition. You get the money back only over the customer's lifetime, and you need cash in the meantime.