How to Calculate LTV: Customer Lifetime Value Formula Explained
LTV tells you how much revenue a customer generates over their entire relationship with your company. Here's the formula, a worked example, and what benchmarks VCs use.
Quick Answer
LTV tells you how much revenue a customer generates over their entire relationship with your company. Here's the formula, a worked example, and what benchmarks VCs use.
Customer Lifetime Value (LTV) is the total net revenue you expect to receive from a customer over the entire duration of their relationship with your business. It's the cornerstone of unit economics and directly determines how much you can rationally spend to acquire a customer.
Without knowing LTV, you're guessing at CAC targets. With it, you can model sustainable growth with precision.
What Is LTV?
LTV represents the cumulative revenue (or profit) a single customer generates from the day they sign up to the day they churn. It combines three variables: how much they pay per period, how often they pay, and how long they stick around.
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There are two versions:
- Revenue LTV — total gross revenue from a customer over their lifetime
- Gross Profit LTV — the more accurate version that accounts for the cost to serve that customer
VCs typically want to see Gross Profit LTV when evaluating unit economics.
The Formula
Simple LTV (subscription):
```text
LTV = Average Revenue Per Account (ARPA)
────────────────────────────────────
Monthly Churn Rate
```
Gross Profit LTV:
```text
LTV = (ARPA × Gross Margin %)
──────────────────────────
Monthly Churn Rate
```
Alternative (non-subscription / e-commerce):
```text
LTV = Average Order Value × Purchase Frequency × Customer Lifespan
```
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