Lifetime Value (LTV), also called customer lifetime value (CLV), is the total value a business expects to earn from a single customer over the entire relationship, usually expressed as revenue or gross profit per customer.
LTV is estimated from how much a customer spends per period and how long they stay. For a subscription business a common form is average monthly revenue per customer divided by the monthly 📝Churn Rate, since the reciprocal of churn approximates customer life in months. For repeat-purchase commerce, lifetime revenue can be approximated as average order value divided by one minus the repeat purchase rate. More rigorous versions discount future cash flows to present value.
LTV is meaningful only against the cost of winning the customer. Divided by 📝Customer Acquisition Cost (CAC), it forms the 📝LTV:CAC ratio at the heart of 📝Unit Economics. Because LTV has no standard definition, a revenue-based figure can overstate the value of customers in low-margin businesses; multiplying lifetime revenue by 📝Gross Margin produces 📝Lifetime Gross Profit (LTGP), a stricter measure. Averages also hide dispersion, and the 📝Magic Cohort of best customers can carry an LTV the rest of the base never reaches.
For a subscription business the test I apply is simple: CAC has to be less than LTV, and I calculate LTV from gross profit, divided by one minus the repeat purchase rate.