Metrics
What is LTV (Lifetime Value)?
Lifetime Value is the total revenue you can expect from a single customer throughout their entire relationship with your business.
LTV is a crucial metric that helps you understand how much a customer is worth over time, not just at the point of purchase. For subscription businesses, LTV is directly tied to churn—lower churn means higher LTV.
The basic LTV formula is: Average Revenue Per User (ARPU) ÷ Churn Rate
For example:
- ARPU: $50/month
- Monthly churn: 5%
- LTV = $50 ÷ 0.05 = $1,000
This means each customer is worth $1,000 over their lifetime. If your customer acquisition cost (CAC) is $200, your LTV:CAC ratio is 5:1, which is healthy.
Understanding LTV helps you:
- Set appropriate marketing budgets
- Identify high-value customer segments
- Make better product decisions
Examples
- A course selling for $500 one-time has an LTV of $500
- A $20/month membership with 10% monthly churn has an LTV of $200
- Adding upsells can increase LTV even with the same churn rate
Frequently Asked Questions
What is a good LTV:CAC ratio?
3:1 is generally considered healthy. 5:1 or higher is excellent.
How do I increase LTV?
Reduce churn, increase prices, add upsells, or extend the customer relationship with new offerings.
Is LTV the same as revenue?
No. LTV is a prediction of future revenue from a customer. Actual revenue may vary.