Customer lifetime value (LTV)
What is customer lifetime value?
Customer lifetime value (LTV or CLV) is the expected revenue, or better, gross profit, from a customer over the whole time they stay. A simple subscription estimate is average revenue per customer per month times gross margin, divided by monthly churn rate.
Comparing LTV with CAC shows whether growth is profitable.
Why customer lifetime value matters
LTV tells you how much you can afford to spend to win a customer, and shows the value of improving retention.
Customer lifetime value example
Customers pay $50 a month, gross margin is 80% and monthly churn is 4%. LTV ≈ $50 × 0.8 ÷ 0.04 = $1,000.
Related marketing terms
Customer acquisition cost (CAC)
Customer acquisition cost, CAC, is the average amount spent on sales and marketing to win one new customer in a given period.
Churn rate is the share of customers who stop using or paying for a product in a period, such as a month. Lower is better.
Referral marketing rewards existing customers for bringing in new ones, for example with credits or discounts for both sides.