Definition
Customer Lifetime Value (LTV)
Customer Lifetime Value (LTV or CLV) is the total profit a business expects to earn from a customer across the entire relationship. A common estimate is average revenue per customer times gross margin, divided by churn rate. LTV quantifies what a customer is truly worth, setting the ceiling on what a business can sensibly spend to acquire and keep them.
Key takeaways
- LTV is the total profit expected from a customer over the whole relationship — commonly margin-adjusted revenue divided by churn rate.
- Because the formula divides by churn, LTV is hugely sensitive to retention: halving churn roughly doubles LTV with no new customers.
- Use gross margin not revenue, discount distant future value, and compute LTV per segment — a blended figure misleads.
- LTV sets the ceiling on acquisition spend via the LTV:CAC ratio and payback period.
LTV ties the whole growth model together. Because the simplest formula divides by churn, lifetime value is exquisitely sensitive to retention: halving churn roughly doubles LTV without winning a single new customer. This is the mathematical reason retention work so often beats acquisition work, and why expansion revenue — which can push net churn negative — has outsized effect on the number.
The number is only as good as its inputs. Using revenue instead of gross margin overstates LTV; ignoring discounting overstates the value of distant future cash; and applying one blended LTV across very different customer segments masks that enterprise and self-serve customers may have wildly different worth. Sophisticated teams compute LTV per cohort or segment and discount future value to the present.
LTV's purpose is to govern acquisition spend through the LTV:CAC ratio and payback period. An LTV far above CAC means there is room to invest more aggressively in growth; an LTV that barely clears CAC means the business must fix retention or pricing before scaling, or it will simply lose money faster.
Planoda computes the retention and revenue inputs LTV depends on from real events, so the lifetime-value estimate reflects how customers actually behave rather than an optimistic assumption.
Related terms
- Customer Acquisition Cost (CAC)Customer Acquisition Cost (CAC) is the total sales and marketing spend required to win one new customer, calculated as those fully loaded costs over a period divided by the new customers acquired in it. CAC is half of the core unit-economics equation: a business is viable only when the value a customer returns comfortably exceeds the cost to acquire them.
- Churn RateChurn rate is the percentage of customers (or revenue) lost over a period, calculated as customers lost divided by customers at the start of the period. It is the inverse of retention and the single most-watched health metric for subscription businesses, because small monthly losses compound into large annual ones.
- Retention RateRetention rate is the percentage of customers (or users) who remain active over a period — the mirror image of churn. Calculated as customers retained divided by customers at the period's start, it measures whether a product delivers durable, repeated value rather than a one-time hit, and underpins almost every other growth metric.
- Annual Recurring Revenue (ARR)Annual Recurring Revenue (ARR) is the normalized, predictable subscription revenue a business expects over a year, counting only recurring contracts and excluding one-time fees. It is the headline scale metric for subscription companies — a snapshot of the run-rate revenue the customer base would generate over twelve months at the current moment.
- Customer Health ScoreA customer health score is a composite metric that blends behavioral and relationship signals — product usage, support history, engagement, sentiment, and payment status — into a single indicator of how likely an account is to renew, expand, or churn. It gives customer success teams an early, prioritized view of which accounts need attention.