What is LTV (customer lifetime value)?
How is customer lifetime value calculated?
The most common form multiplies how much a customer pays each period by how long they stay. Average revenue per period often comes from ARPU, and expected lifespan is usually estimated as one divided by the churn rate. Suppose a customer brings 50 a month and monthly churn is five percent. Expected life is 1 ÷ 0.05 = 20 months, so revenue LTV is 50 × 20 = 1,000. Lower churn stretches the lifespan and raises LTV; higher churn cuts it.
Should LTV use revenue or profit?
Both are used, but they answer different questions. Revenue LTV tells you the total a customer will pay. Profit LTV applies the gross margin first, so it reflects what the business actually keeps after the cost of serving that customer. If serving a customer costs a fifth of what they pay, profit LTV is eighty percent of the revenue figure. Profit LTV is the safer basis for acquisition decisions, because it will not tempt you into spending more to win a customer than they are worth.
Why compare LTV against CAC?
LTV only means something next to what it cost to earn. Set against customer acquisition cost, it shows whether the business makes money on each customer it wins. A customer worth 1,000 over their life who cost 250 to acquire returns four times the spend, leaving room for overheads and profit. When acquisition cost creeps toward lifetime value, growth stops paying for itself, which is why the two are almost always quoted as a ratio.
Reading LTV from your exports
LTV draws on figures you can pull from a subscriptions export, such as a CSV from Stripe: recurring revenue per customer and the churn that sets the lifespan. Rather than stitch those together by hand, you can open the file and ask for average revenue and churn in plain English, then combine them. Paperswift runs the analysis in your browser, and only your column names and their types are sent when you ask, never the values in your rows. For heavier modelling some teams reach for a full BI stack, which our Tableau alternative note weighs against a single export.
Frequently asked questions
How is customer lifetime value calculated?+
A common approach multiplies average revenue per customer per period by the average customer lifespan. Lifespan is often estimated as one divided by the churn rate, so a five percent monthly churn implies a twenty-month average life. Some teams use profit rather than revenue by applying the gross margin, which gives a more conservative and decision-ready figure.
What is the difference between revenue LTV and profit LTV?+
Revenue LTV multiplies revenue per period by expected lifespan, giving the total a customer pays. Profit LTV applies the gross margin first, so it reflects what the business actually keeps after the cost of serving that customer. Profit LTV is the sounder basis for deciding how much you can afford to spend on acquisition.
How does LTV relate to CAC?+
LTV and customer acquisition cost are read together as a ratio. LTV is the value a customer brings; CAC is what it cost to win them. A healthy business earns back well more than it spent, so a common rule of thumb looks for lifetime value comfortably above acquisition cost, with the gap covering overheads and profit.
Why is LTV only an estimate?+
LTV projects the future from past averages, and both revenue per customer and churn can shift. A single figure also hides wide variation between customers, since a few large accounts may be worth many times an average one. Treat LTV as a planning guide and revisit it as churn, pricing, and customer mix change over time.
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Start free todayLast updated · by Stefan