What is Customer Lifetime Value (LTV)?

Customer Lifetime Value (LTV/CLV) is the total revenue a business can expect from a single customer over the duration of their relationship.

Simple formula:
LTV = Average Revenue per User (ARPU) × Gross Margin % / Churn Rate

Example:
•ARPU: $49/month
•Gross margin: 80%
•Monthly churn rate: 5%
•LTV = ($49 × 0.80) / 0.05 = $784

Why LTV matters:
1. Determines how much you can spend on acquisition (CAC budget)
2. Predicts long-term business viability
3. Helps prioritize customer segments
4. Key metric investors evaluate

How to increase LTV:
1. Reduce churn — Better onboarding, customer success, product quality
2. Increase ARPU — Upsells, premium tiers, usage-based pricing
3. Improve margins — Reduce cost of goods sold
4. Expand revenue — Cross-sell complementary products

Use our free LTV calculator to calculate yours →