What is Customer Lifetime Value (LTV)?

Customer Lifetime Value (LTV, sometimes written CLV or CLTV) is the total amount of profit a single customer brings you from their first purchase to their last. It rolls up how much they spend, how often they buy, and how long they stick around into one number.

LTV is the other half of the equation that decides whether a business works. You spend money to win a customer (see CAC), and LTV tells you how much that customer is actually worth in return. If they're worth less than they cost, you lose money on every sale.

How to estimate LTV

A simple version multiplies the average revenue per customer by their gross margin and then by how long they stay. For a subscription, that often looks like monthly revenue times gross margin, divided by your monthly churn rate.

If a customer pays you $50 a month, your gross margin is 80%, and 5% of customers leave each month, their LTV is roughly $50 × 0.80 ÷ 0.05 = $800. Use profit, not raw revenue — counting top-line revenue makes every customer look more valuable than they really are.

• Always use gross margin, not revenue, so the number reflects real money kept.
• Lower churn dramatically raises LTV — retention is the biggest lever you have.
• Be conservative early; founders almost always overestimate how long customers stay.

Why LTV matters when validating an idea

The single most important test of a business model is the LTV-to-CAC ratio. A healthy benchmark is roughly 3:1 — a customer should be worth about three times what you spent to acquire them. Below 1:1 you are paying to lose money; far above 3:1 you may be underspending on growth.