How to Calculate LTV: Customer Lifetime Value Formula Explained

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.

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

```