LTV (Customer Lifetime Value)

LTV (Customer Lifetime Value) is the total revenue, or gross profit, you expect to earn from a customer across the entire relationship, from first payment to churn. It turns a monthly subscription into a single lifetime figure, which lets you decide how much you can afford to spend winning that customer.

How to calculate LTV

The common shortcut divides average revenue per account by your churn rate.

If ARPA is $80/month and monthly churn is 4% (0.04), average lifespan is 1 ÷ 0.04 = 25 months, so LTV is $80 × 25 = $2,000. A more conservative version multiplies by gross margin so you measure profit, not revenue: at a 80% margin, that same customer is worth $1,600 in gross-profit LTV.

A few cautions:

• Use a churn rate that matches the revenue period, monthly ARPA with monthly churn.
• The ARPA ÷ churn formula assumes churn is roughly constant, which breaks for young companies with volatile retention.
• Revenue LTV always overstates value versus gross-profit LTV. Pick one and be consistent.

Why LTV matters

LTV sets the ceiling on acquisition spend. On its own it's just a number, so it's almost always read against cost. Divided by CAC it gives the LTV:CAC ratio, the single clearest test of whether your growth model is sound. A healthy LTV depends on keeping churn low and on expansion lifting revenue over time, which is why retention work compounds: every point of churn you remove lengthens lifespan and lifts LTV directly.