Definition
LTV (Lifetime Value) is the total value you expect from a customer over their lifetime. It's often used to set acquisition targets (CAC/CPA) and to evaluate payback and growth efficiency. Because costs matter, many teams prefer gross profit LTV (revenue * gross margin over the lifetime).
Common formulas (shortcuts)
- Revenue LTV ~ ARPA / churn (with consistent time units).
- Gross profit LTV ~ (ARPA * gross margin) / churn.
- Cohort-based LTV: sum observed gross profit over time from real cohorts (more accurate).
Example
If ARPA is $500/month, gross margin is 80% (0.8), and monthly churn is 2% (0.02), then gross profit LTV ~ ($500 * 0.8) / 0.02 = $20,000.
Common mistakes
- Using revenue LTV while comparing to fully-loaded CAC (mismatch).
- Mixing monthly churn with annual ARPA (time unit mismatch).
- Ignoring expansion or contraction when it materially affects retention dynamics.
Measured as
Measure LTV Meaning: Formula, Example, and When the Shortcut Breaks on the same customer segment, time window, and revenue basis each time you review it.
Misused when
- Using revenue LTV while comparing to fully-loaded CAC (mismatch).
- Mixing monthly churn with annual ARPA (time unit mismatch).
- Ignoring expansion or contraction when it materially affects retention dynamics.
Operator takeaway
- Keep LTV Meaning: Formula, Example, and When the Shortcut Breaks consistent by cohort, segment, and period before you use it as a decision signal in planning or reporting.
- Interpret the metric alongside retention, margin, or payback so one ratio does not hide the real operating trade-off.
Next decision
- Quantify the impact with LTV Calculator if you need to turn the definition into an operating assumption.
- Read LTV guide: formula, customer lifetime, cohort models, and LTV:CAC if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
Where to use this on MetricKit
Calculators
- LTV Calculator: Estimate customer Lifetime Value (LTV) using ARPA, gross margin, and churn rate.
- Cohort LTV Forecast Calculator: Estimate cohort-based LTV using churn, expansion, gross margin, and optional discounting.
- Target CPA from LTV Calculator: Translate LTV and contribution margin into a target CPA (and break-even CPA) for paid acquisition.
- LTV:CAC Calculator: Compute LTV:CAC ratio and CAC payback using ARPA, gross margin, churn, and CAC.
- LTV Sensitivity Calculator: See how gross profit LTV changes as churn and gross margin vary (simple 3x3 sensitivity).
Guides
- LTV guide: formula, customer lifetime, cohort models, and LTV:CAC: A practical LTV guide covering shortcut formulas, gross profit vs revenue LTV, customer lifetime, cohort-based models, and how to connect LTV to CAC and payback.
- Cohort LTV forecasting: churn, expansion, discounting (practical model): A practical guide to cohort-based LTV: why it beats simple churn formulas, how to choose assumptions, and how to interpret discounted LTV.
- Target CPA: how to set acquisition targets from LTV and margin: A practical guide to target CPA: connect acquisition cost to LTV, contribution margin, and payback constraints (and avoid common mismatches).
- Blended CAC vs paid CAC: when each is the right metric: CAC depends on what you include. Learn paid-only CAC vs fully-loaded blended CAC, how to avoid mismatches, and how to connect CAC to payback.
- CAC vs CPA: definitions, formulas, and when to use each: CAC vs CPA explained: what each metric measures, how to calculate them, and how to translate CPA into CAC for planning.