Unit Economics
Customer Lifetime Value (LTV)
Customer Lifetime Value (LTV, also CLV) is the total gross profit you expect from a customer across their entire relationship with you.
Also known as: LTV, CLV, customer lifetime value
Why it matters
LTV sets the ceiling on what you can afford to spend acquiring a customer. The bigger the LTV, the more aggressively you can grow. Because LTV is driven by retention, improving churn is usually the highest-leverage way to increase it. For founders, LTV turns a vague sense of "sticky product" into a number you can plan around.
Formula
LTV = ARPU x gross margin x average customer lifetime, where average lifetime in months = 1 / monthly churn rate.
Worked example
ARPU of $50/month, 80 percent gross margin, and 5 percent monthly churn (a 20-month lifetime): 50 x 0.80 x 20 = $800 LTV.
Common mistakes
- Using revenue instead of gross margin, which overstates LTV.
- Assuming churn stays constant forever when early churn is usually higher.
- Quoting LTV with no churn data behind it, which makes it a guess.
Frequently asked questions
How do you calculate LTV?
A common formula is ARPU times gross margin times average customer lifetime, where lifetime in months equals 1 divided by monthly churn. Using gross margin rather than revenue keeps it honest.
What is the difference between LTV and CLV?
They are the same thing: the lifetime value of a customer. Some write LTV, others CLV or CLTV. All refer to the total profit you expect from a customer over the relationship.
Should LTV use revenue or gross margin?
Gross margin. Revenue-based LTV ignores the cost of serving the customer and overstates their value. Margin-based LTV is what you can actually reinvest in acquisition.
How do you increase LTV?
Reduce churn (the biggest lever), raise prices, improve gross margin, and expand revenue per customer with upsells. Retention compounds, so small churn improvements move LTV a lot.
Why does churn matter so much for LTV?
Because average lifetime is the inverse of churn. At 5 percent monthly churn the average customer stays 20 months; at 2.5 percent they stay 40. Halving churn roughly doubles LTV.
What is a good LTV?
It is only meaningful against CAC. Aim for LTV at least three times CAC. A large LTV sitting behind an even larger CAC is still a losing business.
Related terms
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Last updated 2026-06-02 · Back to the glossary