LTV stands for lifetime value. It is the total revenue a customer generates over the entire time they use your product. Alongside CAC, it is one of the two numbers that determine whether a business model is economically viable.
How LTV is calculated
The simplest version of LTV is average revenue per customer per month multiplied by the average number of months a customer stays. A customer who pays 50 per month and stays for an average of 24 months has an LTV of 1,200.
In practice, LTV calculations get more complex quickly. Revenue per customer often varies across segments. Average customer lifetime depends on churn rate, which itself varies by cohort, acquisition channel, and customer type. For businesses with expansion revenue, where customers increase their spend over time, LTV is higher than the simple calculation suggests and requires a more sophisticated model.
At early stage, when there is limited historical data, LTV is often estimated rather than precisely calculated. An honest estimate with clearly stated assumptions is more useful than false precision. What matters most is the direction and the order of magnitude, not the third decimal place.
Why LTV matters beyond the ratio
LTV shapes almost every strategic decision in growth marketing. It determines the maximum amount you can afford to spend to acquire a customer while maintaining a viable margin. It influences channel selection, because channels that produce high-LTV customers at a higher CAC may be economically preferable to channels that produce low-LTV customers cheaply.
It also changes how you think about customer segments. A segment with a CAC of 200 but an LTV of 1,000 is significantly more attractive than one with a CAC of 50 but an LTV of 80, even though the second looks better on a cost-per-acquisition basis. Understanding LTV by segment changes which customers you most want to acquire and therefore which channels and messages you prioritise.
How to improve LTV
Reducing churn is the most direct lever. Every month of additional customer lifetime adds revenue without any additional acquisition cost. The second lever is expansion revenue: upselling, cross-selling, or moving customers to higher tiers. The third is price, which is underused as a lever by most early-stage companies that benchmark their pricing against competitors rather than against the value they deliver.
LTV tells you what a customer is worth. CAC tells you what acquiring them cost. The relationship between the two tells you whether the business works.