What is LTV?
The total revenue you expect from a customer over their entire relationship.
LTV, customer lifetime value, is the total revenue you can expect from a customer over the entire time they stay with you, not just their first purchase. For a subscription business, a simple version is average monthly revenue per customer multiplied by average customer lifespan in months.
Why LTV matters
LTV matters because it sets a ceiling on what you can sensibly afford to spend acquiring a customer. A business that ignores LTV and only looks at the cost of the first sale can end up chasing customers who are profitable on paper but who churn quickly, actually losing money once acquisition cost is properly accounted for against their true lifetime value.
It also reveals where the real profit in a business is hiding. Two customers who cost the same to acquire can have wildly different value if one renews for years and refers others while the other churns after a month. Understanding LTV by segment lets a business focus acquisition spend on the customers who are actually worth pursuing, rather than treating every lead as equally valuable.
How LTV works in practice
- 01Calculate LTV as average revenue per customer per period multiplied by average customer lifespan in the same period.
- 02Break LTV down by acquisition channel or customer segment, since it usually varies a lot between them.
- 03Compare LTV against customer acquisition cost, aiming for a healthy multiple, commonly cited as at least three to one.
- 04Track how LTV changes as you adjust pricing, onboarding, or support, since all three affect retention directly.
- 05Recalculate LTV regularly rather than once, since churn rates and pricing shift over time.
- 06Use LTV by segment to prioritise which channels or customer types deserve more acquisition budget.
Common mistakes
- ·Calculating LTV once at launch and never updating it as churn and pricing change.
- ·Ignoring the cost of serving a customer, such as support time, when calculating true lifetime profitability.
- ·Comparing LTV to acquisition cost without breaking either figure down by channel or segment.
- ·Chasing customer volume without checking whether the additional customers actually retain well over time.
How to measure LTV
Recalculate LTV at least quarterly using actual churn and revenue data rather than early assumptions, and always pair it with customer acquisition cost to judge whether the ratio between them is healthy. A commonly cited healthy benchmark is an LTV to CAC ratio of at least three to one, though the right number varies by industry and growth stage. Segment the calculation by channel and customer type to spot which sources of customers are genuinely the most valuable, not just the cheapest to acquire.
What good looks like
A good LTV picture is one calculated regularly from real churn and revenue data, broken down by channel and segment, and actively used to guide acquisition spend rather than sitting in a spreadsheet nobody revisits. Acquisition cost stays comfortably below lifetime value across the channels the business relies on most. MarketJargon's referral program agent and reporting tools can help track LTV by segment so acquisition decisions are grounded in real numbers.
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LTV questions, answered
What is a healthy LTV to CAC ratio?
A commonly used benchmark is three to one, meaning a customer's lifetime value should be at least three times what it cost to acquire them, though this varies by industry and how quickly cash needs to be recovered.
How do I calculate LTV for a business with no subscriptions?
Use average order value multiplied by average number of repeat purchases over a typical customer's relationship with the business, rather than a monthly subscription formula.
Does LTV include referral value?
Basic LTV calculations usually do not, but some businesses add an estimated referral value on top, since a customer who refers others is worth more than their direct purchases alone suggest.
How often should LTV be recalculated?
At least quarterly, and sooner after any significant pricing change or shift in churn rate, since using stale LTV figures can lead to overspending on acquisition that no longer pays back.
Related terms
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