What Is LTV (Customer Lifetime Value)?
The total revenue a business expects from a single customer over the entire relationship.
The total revenue a business expects from a single customer over the entire relationship.
Customer Lifetime Value (LTV or CLV) estimates the total revenue a customer will generate before they churn. It's essential for understanding how much you can afford to spend acquiring customers.
LTV helps determine sustainable growth: if your LTV is significantly higher than your Customer Acquisition Cost (CAC), your business model is viable. The widely-cited benchmark is LTV:CAC ratio of 3:1 or higher.
There are multiple methods to calculate LTV depending on data availability — from simple (ARPU ÷ Churn Rate) to complex cohort-based models that account for expansion revenue and variable churn curves.
Formula
Simple LTV = ARPU ÷ Monthly Churn Rate
Example
If your ARPU is $100/month and monthly churn is 2%, your LTV is $5,000.
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