Definition
The total gross margin a business expects to earn from a customer over their entire relationship.
Formula
Average revenue per customer x Gross margin % x Average customer lifespan
How to measure
Multiply average monthly revenue per customer by gross margin percentage, then by the average number of months a customer stays before churning.
Why track it
LTV, compared against CAC, tells a founder how much they can afford to spend acquiring a customer while remaining profitable.
Example
A customer paying $60/month at 70% gross margin who stays 20 months has an LTV of roughly $840.
FAQ
- What is Customer Lifetime Value?
- The total gross margin a business expects to earn from a customer over their entire relationship.
- How do you calculate Customer Lifetime Value?
- Average revenue per customer x Gross margin % x Average customer lifespan
- Why track Customer Lifetime Value?
- LTV, compared against CAC, tells a founder how much they can afford to spend acquiring a customer while remaining profitable.