What is LTV (Lifetime Value)?
The total revenue a business expects to earn from a customer over the entire duration of their relationship.
Detailed Explanation
Lifetime Value (LTV or CLV) is the predicted total revenue a customer will generate throughout their relationship with a business. It is calculated by multiplying average purchase value by purchase frequency and customer lifespan. LTV is one of the most important metrics in growth because it determines how much can be spent to acquire customers (CAC). A sustainable business needs LTV significantly higher than CAC — typically a 3:1 ratio or better. Increasing LTV through retention, upsells, and expansion revenue is often more efficient than reducing CAC because improving existing customer relationships compounds over time.
Related Terms
Frequently Asked Questions
How do you calculate LTV?
Simple formula: Average Revenue Per User (ARPU) × Gross Margin × Customer Lifespan. More sophisticated models account for churn rates, expansion revenue, and discount rates.
What is a good LTV:CAC ratio?
3:1 is considered healthy. Below 2:1 suggests unsustainable unit economics. Above 5:1 may indicate underinvestment in growth.
How can AI increase LTV?
AI can personalize onboarding, predict churn and intervene proactively, identify upsell opportunities, automate customer success outreach, and optimize pricing strategies.