Lifetime Value(LTV)
Total revenue (or profit) a customer generates over the entire relationship.
Lifetime Value is the total revenue a customer is expected to generate over the entire relationship with your business. Some teams use revenue LTV, others use gross profit LTV (more conservative and more meaningful for decision-making). LTV combined with CAC determines whether you have a sustainable business.
LTV can be calculated historically (looking at existing customer cohorts) or predictively (modeling expected behavior). Predictive LTV is more useful for marketing decisions but harder to get right. For most businesses, a simple historical cohort analysis is enough.
The biggest LTV trap is using averages rather than cohorts. If your business is growing, your average customer hasn't been around very long, and historical averages dramatically understate true LTV.
LTV = Average Order Value × Purchase Frequency × Customer Lifespan (in years)A SaaS company has $200/month average revenue per customer, 5% monthly churn (so average customer stays 20 months). LTV = $200 × 20 = $4,000.
Frequently asked questions
Revenue LTV or gross profit LTV?
Gross profit LTV is more honest. Revenue LTV makes everyone feel good but doesn't account for the cost of delivering the service. For decision-making, always use gross profit (or contribution margin) LTV.
How do I calculate LTV for a young company?
Cohort by cohort. Track each monthly cohort's behavior over time, even if you only have 6-12 months of data. Project the curve forward using observed retention shape rather than averaging across all customers.
Related terms
Total cost to acquire one new paying customer.
The ratio of customer lifetime value to customer acquisition cost.
The percentage of customers who cancel in a given period.
The normalized monthly value of all recurring revenue contracts.
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