LTV — Lifetime Value
LTV is the total revenue a business expects from a customer over their lifetime. The key metric for justifying acquisition spend and evaluating unit economics.
What Is LTV?
Lifetime Value (LTV) — also called Customer Lifetime Value (CLV or CLTV) — is the total revenue (or profit) a business expects to generate from a single customer over the entire duration of their relationship.
For a subscription business, the basic formula is:
LTV = Average Revenue Per User (ARPU) ÷ Monthly Churn Rate
If the average customer pays $100/month and churns at 5%/month, LTV = $100 ÷ 0.05 = $2,000.
Simple vs. Granular LTV
| Version | Formula | Use Case |
|---|---|---|
| Simple LTV | ARPU ÷ Churn Rate | Quick sanity check |
| Gross Profit LTV | (ARPU × Gross Margin %) ÷ Churn Rate | Investor-facing benchmarks |
| Discounted LTV | NPV of future cash flows | Academically rigorous |
Most early-stage startups use the simple or gross profit version. Discounted LTV accounts for the time value of money but requires assumptions about discount rate and growth.
LTV and the Business Model
LTV reveals whether your business model is fundamentally healthy:
- High LTV → justifies aggressive CAC, more channels, longer payback periods
- Low LTV → requires rock-bottom CAC and extremely efficient operations
- LTV < CAC → the business loses money on every customer — change something fast
The golden ratio is LTV : CAC ≥ 3. Below 1 means you’re paying more to acquire customers than you’ll ever earn from them.
How to Increase LTV
- Reduce churn — the biggest lever. Halving churn doubles LTV.
- Expand revenue — upsells, cross-sells, and tier upgrades increase ARPU over time
- Improve onboarding — customers who activate faster churn less
- Build switching costs — integrations, data lock-in, and workflows that embed the product
Cohort Analysis for LTV
LTV is most accurate when calculated per cohort (a group of customers acquired at the same time):
| Cohort | Month 1 Revenue | Month 6 Revenue | Month 12 Revenue |
|---|---|---|---|
| Jan 2024 | $10,000 | $8,500 | $7,200 |
| Feb 2024 | $12,000 | $10,200 | $8,800 |
Tracking how revenue from each cohort declines over time gives you a more accurate LTV than a formula applied to blended data.
Common Mistakes
- Using revenue instead of gross profit — inflates LTV and misleads investment decisions
- Assuming infinite customer life — add a realistic ceiling (e.g., 3–5 years for most B2B SaaS)
- Ignoring expansion revenue — customers who upgrade increase LTV over time; model this in
- Applying aggregate churn — different segments churn at very different rates; segment your LTV
Key Takeaway
LTV is not a number you calculate once — it’s a metric you watch change as you improve retention, pricing, and expansion revenue. The goal is to grow LTV faster than your CAC grows, widening the gap and building an increasingly defensible business.