Customer Lifetime Value (LTV)

The total gross profit a business expects to earn from a customer over the whole relationship.

Example

20 of monthly gross profit over a 20-month average lifetime gives an LTV of 400.

Important

Compare it with customer acquisition cost; LTV based on optimistic retention overstates a customer's worth.

Related terms

  • Customer Acquisition Cost (CAC) — The total sales and marketing spend required to win one new customer.
  • Churn Rate — The share of customers or revenue lost over a period.

Lessons that explain it

  • Consumer businesses live or die on acquisition cost and repeat purchase - and some questions apply everywhere — Consumer companies depend on the relationship between customer lifetime value and acquisition cost, brand and channel. Across all sectors, unit economics, retention, capital needs and time to revenue are the questions that travel. (12 min)
  • Each customer must be worth more than it costs to win — Unit economics compare what a single customer or order contributes with what it costs to acquire and serve. Growth only creates value when those numbers work. (11 min)

All 578 terms in the Investing glossary