Glossary
What is customer lifetime value (LTV)?
Customer lifetime value (LTV) is the total revenue or gross profit a business expects from one customer over the whole relationship. For subscriptions, a simple estimate is average monthly revenue per customer divided by monthly churn rate, often multiplied by gross margin. It sets how much you can spend to acquire a customer.
A simple formula
LTV = average revenue per account per month ÷ monthly churn rate.
For profit-based LTV, multiply by gross margin.
| ARPA | Monthly churn | LTV (revenue) |
|---|---|---|
| $30 | 5% | $600 |
| $30 | 2.5% | $1,200 |
| $60 | 5% | $1,200 |
Halving churn has the same effect as doubling price.
Using it
LTV caps what you can spend on acquisition. If a customer is worth $600, a $200 paid listing that brings one customer pays off; one that brings none doesn't.
Caveats
Early startups have little churn history, so LTV estimates swing. Cohorts from launch platforms or deal sites may behave differently from search or referral cohorts.
Example
A founder estimates LTV at $900 and sees one directory bring two paying customers a month for a $150 one-time fee. It's one of her best investments.
FAQ
How do I calculate LTV with little data?
Use early churn as an estimate and update it monthly.
Should LTV use revenue or profit?
Profit (gross margin) is more accurate for spending decisions.
What's a good LTV:CAC ratio?
Around 3:1 is a common SaaS benchmark.
Why does LTV matter for launches?
It tells you how much a launch channel can cost per customer and still pay off.