What is Customer Lifetime Value (LTV)?
Total profit expected from a customer relationship.
How to calculate it
Calculate Customer Lifetime Value (LTV) as: Avg revenue per account × Gross margin × Avg lifespan. Pull the inputs from your connected data and track the trend over time in your dashboard.
Examples
Example 1
$1,200 annual revenue x 80% margin x 3-year lifespan = $2,880 LTV.
Example 2
$1,500 annual revenue per account at an 80% gross margin over a 3-year average lifespan -> $3,600 LTV, supporting a CAC of up to about $1,200.
Why it matters
Customer lifetime value (LTV) is the total profit expected from a customer relationship and anchors acquisition spend, segmentation and retention investment. Comparing it to CAC reveals whether the business model works at a unit level. Overly optimistic lifespan or retention assumptions are the most common way LTV gets inflated.
Benchmark context
Judge it relative to CAC, targeting an LTV:CAC of 3:1 or better; the absolute value matters less than the ratio and the assumptions behind it.
Common pitfalls
Overly optimistic lifespan inflates LTV.
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