LTV (lifetime value), also called customer lifetime value or CLV, estimates the total revenue a customer generates across their whole relationship with a business. It guides how much you can afford to spend acquiring a customer and which segments deserve the most attention.
What drives LTV?
LTV projects future revenue from past behavior, so higher-LTV customers justify higher acquisition costs and more attention. Four inputs move it:
- Purchase frequency
- Customer lifespan, or how long they keep buying
- , if you measure LTV in profit rather than revenue
How do you calculate LTV?
The simplest version multiplies the core inputs:
LTV = Average Order Value x Purchase Frequency x Customer Lifespan
So a $50 average order, 4 purchases a year, over 3 years gives a $600 LTV. To measure profit rather than revenue, multiply by your : $600 x 30% is $180 in profit LTV. For subscriptions, a common form is ARPU divided by churn:
LTV = ARPU / Monthly Churn Rate
A $50 ARPU at 5% monthly churn implies a $1,000 LTV. Our CLV calculator works out lifetime value and the LTV:CAC ratio and compares them with industry benchmarks.
What is the LTV:CAC ratio?
The LTV:CAC ratio compares what a customer is worth to what they (LTV / Customer Acquisition Cost). You can calculate the cost to acquire a customer, and its payback period, separately. As a rough rule of thumb, below 1:1 means you lose money per customer, 1:1 to 3:1 is sustainable but thin, 3:1 to 5:1 is usually considered healthy, and well above 5:1 can mean you are underinvesting in growth.
How should you read LTV?
LTV is a prediction, not a guarantee. New cohorts can behave differently from past ones, and economic or competitive shifts change future behavior. An average also hides wide gaps between segments, so it helps to calculate LTV by channel, product, or customer type rather than trusting one blended number.
How do you increase LTV?
- Improve retention, since a longer lifespan raises LTV directly.
- Lift order value with upsells, cross-sells, and bundles.
- Increase frequency through subscriptions, loyalty programs, and replenishment reminders.
- Acquire fewer low-value customers by targeting higher-potential segments.
