LTV (Customer Lifetime Value, also CLV) is an estimate of the total value a single customer brings to a business from their first purchase to their last.
Why it matters
LTV tells you how much you can afford to spend to win a customer. Compared with CAC, it shows whether growth is profitable. A rising LTV means customers stay longer or spend more, which usually signals a healthier product.
Example
A subscription costs 30 USD a month with a gross margin of 80 percent and monthly churn of 4 percent. Average lifetime is 1 divided by 0.04, or 25 months. LTV on a gross-profit basis is 30 x 0.80 x 25, which equals 600 USD.
Common mistakes
- Using revenue instead of gross profit, which overstates what you can spend.
- Applying a single churn figure to very different customer segments.
- Using LTV from a few early months as if it were a proven long-term figure.
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