LTV: definition
Lifetime Value: the total revenue a customer brings you on average over the entire duration of their relationship with you.
By Isidore Mikorey-Nilsson · May 26, 2026
Definition
LTV (Lifetime Value) estimates how much a customer is worth over their entire lifetime with you. It is often approximated as average monthly revenue divided by churn rate. It should never be read on its own: it is the LTV to CAC ratio that tells you whether your acquisition is profitable and at what pace you can afford to spend.
How to calculate it
LTV = average monthly revenue per customer / monthly churn rate
Why it matters
LTV sets the ceiling on what you can spend to win a customer without losing money. Improving it (by reducing churn or upselling) unlocks acquisition channels that were too expensive for you the day before.
When to use it
It is calculated to compare against CAC and guide the acquisition budget. In practice, since it depends on churn, the best way to increase your LTV is not always to charge more, but to keep your customers longer.
Example
A customer who pays $50 a month and stays for 24 months on average has an LTV of about $1,200.
Common mistakes
- Reading it alone without comparing it to CAC.
- Using an optimistic churn figure that inflates the value.
- Reasoning in revenue instead of margin.
Don't confuse it with
- cac: LTV is what a customer brings in; CAC is what it costs to acquire them. The ratio of the two measures profitability.
Related terms
Articles that use this term
Frequently asked questions
- What LTV to CAC ratio should you aim for?
- A ratio of at least 3 to 1 is considered healthy for a SaaS; below that, acquisition is costing too much.