LTV (Lifetime Value)
The total gross profit a company expects to earn from a customer over the entire duration of their relationship.
LTV (or CLTV) estimates the total value a customer generates for a business across their entire relationship, typically calculated using average revenue per customer, gross margin, and expected customer lifespan (derived from churn rate). It's a forward-looking estimate, not a guaranteed number, and its accuracy depends heavily on how reliably churn rate can be projected.
LTV is almost always paired with CAC to evaluate whether a company's growth is fundamentally profitable at the unit level — a business can grow revenue quickly while still having broken unit economics if LTV doesn't comfortably exceed CAC once real costs are accounted for.
LTV = (average revenue per customer x gross margin %) / churn rateA customer generates $12,000 per year in revenue, the company's gross margin is 75%, and annual churn is 15%. LTV = ($12,000 x 0.75) / 0.15 = $60,000.
Recalculate LTV using actual, cohort-based churn data as soon as you have enough customer history — early LTV estimates based on assumed churn rather than observed churn are frequently overoptimistic and get exposed in Series A or B diligence.
Why does LTV depend so heavily on churn rate?
Because churn determines expected customer lifespan — even a small difference in annual churn (say 5% vs 15%) dramatically changes how many years of revenue a typical customer is expected to generate, which compounds directly into LTV.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.