LTV (Customer Lifetime Value)

The total revenue a customer generates over their entire relationship.

Customer Success

Definition

Customer Lifetime Value is the projected total revenue from a customer over their full relationship. Common formula: ARPU × Gross Margin / Churn Rate. High LTV justifies higher acquisition costs and signals strong product-market fit.

Key points

  • Simple formula: Average Revenue Per User / Churn Rate
  • Better formula includes gross margin: ARPU × GM / Churn Rate
  • LTV:CAC ratio of 3:1 is a common healthy benchmark
  • Expansion customers have much higher LTV than flat customers
Example

ARPU of $1,000/month, 70% gross margin, 2% monthly churn: LTV = $1,000 × 0.7 / 0.02 = $35,000.

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