What is LTV?
Lifetime Value – the total revenue a customer generates over their entire relationship.
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How LTV Works
LTV, or Customer Lifetime Value, represents the total revenue (or profit) a customer will generate throughout their entire relationship with your business. It's one of the most important metrics for sustainable growth because it determines how much you can afford to spend acquiring customers.
LTV is calculated by multiplying average purchase value by purchase frequency and customer lifespan. For subscription businesses, it's monthly recurring revenue multiplied by average retention period. The LTV:CAC ratio is crucial—most successful businesses aim for 3:1 or higher, meaning customers generate at least 3x what it costs to acquire them. Increasing LTV through better retention, upsells, and customer experience often yields better ROI than reducing acquisition costs.
Frequently Asked Questions
What is LTV?
Lifetime Value – the total revenue a customer generates over their entire relationship.
LTV, or Customer Lifetime Value, represents the total revenue (or profit) a customer will generate throughout their entire relationship with your business. It's one of the most important metrics for sustainable growth because it determines how much you can afford to spend acquiring customers.
What does LTV stand for?
Why is LTV important?
LTV fundamentally determines how much you can afford to spend on customer acquisition, which sets the upper limit for your marketing budget and growth velocity. Companies with high LTV can outbid competitors in paid channels, invest more in brand building, and achieve market dominance. Without knowing your LTV, you can't make intelligent decisions about CAC targets, payback periods, or which customer segments to prioritize.
How do you calculate LTV?
LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan. For example, if customers spend $100 per purchase, buy 4 times per year, and remain customers for 3 years, LTV is $100 × 4 × 3 = $1,200. For subscriptions: LTV = Monthly Revenue per Customer ÷ Monthly Churn Rate.