LTV (Lifetime Value)

The total gross profit you expect from one customer over the whole relationship.

Example

$50/mo at 80% gross margin with an average life of 20 months is $50 × 0.8 × 20 = $800.

Important

Use gross profit, not revenue. LTV calculated on revenue ignores what it costs to serve the customer and is meaningfully wrong.

Related terms

• CAC (Customer Acquisition Cost) — The total sales and marketing spend to acquire one paying customer.
• Gross margin — Revenue minus the direct cost of delivering it, as a percentage of revenue.
• Churn — The rate at which customers or revenue leave over a period.
• Unit economics — The profit or loss on a single customer, once you strip out fixed costs.

Lessons that explain it

• Pricing — Not what competitors charge. A statement about who you are for — and most early startups price far too low. (15 min)
• Scaling sales and marketing — You cannot hire your way to revenue. You can only hire people to run a motion that already works — so the motion has to exist first. (14 min)
• CAC, LTV and payback — Whether each customer makes you money — and whether growing makes things better or just makes the hole bigger, faster. (15 min)

All 176 terms in the Founder glossary