What is Customer Lifetime Value (LTV)?
Customer Lifetime Value (LTV) is the total revenue you can expect from a single customer over the entire relationship. It's the north star metric for subscription businesses because it tells you how much you can afford to spend to acquire customers.
The LTV Formula
Or more precisely: LTV = (ARPU × Gross Margin) × (1 ÷ Churn Rate)
Why LTV matters: If your LTV is $1,000, you can spend up to $333 to acquire a customer (assuming a healthy 3:1 LTV:CAC ratio). But if your LTV is only $300, you can only spend $100 to acquire customers. Everything changes.
Calculate Your Customer LTV
Use this calculator to understand how different factors affect your customer lifetime value. Try changing the numbers to see the impact.
Simple LTV (Revenue Only)
Profit LTV (After Costs)
Acquisition Budget: You can spend up to $233 per customer (assuming 3:1 LTV:CAC ratio) to maintain profitability.
Understanding LTV Segments
Not all customers have the same lifetime value. Segmenting your customers by LTV helps you make better decisions about acquisition and retention.
Low LTV Customers
LTV < $100. These customers cost more to serve than they generate in revenue.
Medium LTV Customers
LTV $100-$500. These customers are profitable but not your most valuable.
High LTV Customers
LTV > $500. These are your most valuable customers and deserve special attention.
How to Improve Customer LTV
1. Reduce Churn Rate
The biggest lever for improving LTV. Every 1% reduction in churn increases LTV by 20%.
2. Increase ARPU
Higher prices or additional purchases directly increase LTV. But be careful about how price changes affect churn.
3. Improve Gross Margins
Reduce variable costs or increase prices without reducing perceived value. Every 10% improvement in margins increases LTV by 10%.
The LTV:CAC Ratio: Your North Star
The ratio of customer lifetime value to customer acquisition cost tells you whether your business is sustainable. Here's what different ratios mean:
Unsustainable
You're losing money on every customer. Focus on improving LTV or reducing CAC immediately.
Break-even to Profitable
You're profitable but not scalable. Room for improvement in both LTV and CAC efficiency.
Highly Scalable
You can invest aggressively in growth. Focus on maintaining this ratio as you scale.
Industry Benchmarks
- • Enterprise: 5:1 - 10:1
- • Mid-market: 3:1 - 5:1
- • SMB: 2:1 - 3:1
- • Media/Content: 2:1 - 4:1
- • Consumer Apps: 3:1 - 6:1
- • B2B Services: 2:1 - 5:1
Advanced LTV Concepts
Cohort LTV Analysis
Track LTV by customer cohorts (customers acquired in the same month). This reveals whether your LTV is improving over time and helps predict future performance.
Predictive LTV
Use historical data to predict LTV for new customers based on their behavior in the first 30-90 days. Identify high-value customers early and focus resources on them.
LTV Expansion
Existing customers can increase their LTV through upgrades, add-ons, and cross-sells. This is often more profitable than acquiring new customers.
Calculate Your Customer LTV
Use our interactive tools to calculate LTV for your business and understand how different factors affect your customer's lifetime value.