Definition
What is Customer Lifetime Value (LTV)?
The total revenue a business expects from a customer over the entire relationship.
Customer lifetime value (LTV or CLV) estimates the total gross profit a customer generates before churning. It is calculated from average revenue per customer, gross margin, and churn rate. LTV is compared to CAC to evaluate payback efficiency — if LTV is less than 3× CAC, the business is typically over-spending on acquisition or under-retaining customers.
Formula
LTV = (Average Revenue per Customer × Gross Margin) ÷ Monthly Churn RateExample
A SaaS product at $50/mo, 70% gross margin, and 3% monthly churn has an LTV of ($50 × 0.70) ÷ 0.03 = $1,167.