What is LTV?
Also known as: Customer Lifetime Value, CLV
Customer Lifetime Value — the total revenue (or gross profit) a customer generates over their full relationship with your business.
LTV (simple) = Average Order Value × Purchase Frequency × Customer LifespanThe detailed definition
LTV anchors every long-term marketing decision. A high-LTV business can rationally afford expensive customer acquisition because each customer pays back over months or years; a low-LTV business has to break even on first purchase or close to it. Calculation varies: subscription businesses use cohort retention curves; ecommerce uses average order value × repeat purchase rate × estimated customer lifespan; B2B uses annual contract value × expected retention years. The 'right' LTV calculation depends on what decision you're informing. For pricing decisions, use LTV in gross profit terms (not revenue). For acquisition decisions, use LTV at the time horizon your business cares about — 6 months, 1 year, or 3 years — rather than infinite-horizon LTV that may never materialize.
Related terms
Frequently asked about LTV
›How do I calculate customer lifetime value?
Three approaches by business type. Subscription: cohort-based revenue retention over time (e.g., 90-day LTV, 1-year LTV). Ecommerce: average order value × repeat purchase rate × estimated lifespan. B2B contract: annual contract value × expected retention years. For all three, use gross profit terms (not revenue) when comparing to CAC.
›What's a healthy LTV:CAC ratio?
Industry consensus for SaaS: LTV:CAC ≥ 3:1 indicates sustainable growth. Ratios below 1:1 mean you're losing money on each customer. Ratios above 5:1 sometimes indicate underinvestment in growth — you could spend more to acquire customers if the math allows. For ecommerce, the threshold is closer to 1.5:1 because purchases happen sooner.
›Should LTV use revenue or gross profit?
Gross profit, almost always. CAC is paid in real cash; LTV in revenue terms can flatter the math because it doesn't account for COGS. Using gross-profit LTV gives the apples-to-apples comparison: how many dollars of margin does this customer generate vs. how many dollars of cash we paid to acquire them?
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