Lifetime Value (LTV)

The total revenue a company expects to earn from one customer over the entire relationship.

Definition

LTV estimates the total revenue (or gross profit) generated by an average customer before they churn. A simple formula is average revenue per customer per month divided by monthly churn rate. Investors look for LTV/CAC ratios of 3x or higher to confirm the business model works at scale.

Why it matters

A high LTV means each customer is very valuable, which supports higher company valuations. If your company has strong LTV/CAC ratios, the growth story is compelling and your equity upside is better.

Example

Average customer pays $500/month with a 2% monthly churn rate. LTV = $500 / 0.02 = $25,000. If CAC is $5,000, the LTV/CAC ratio is 5x, which is healthy.

Related terms

Customer Acquisition Cost (CAC)

The average cost to acquire one new customer, including sales and marketing spend.

Churn

The rate at which customers cancel or stop paying for a product.

CAC Payback Period

The number of months it takes to recoup the cost of acquiring a customer from their revenue.

Net Revenue Retention (NRR)

Revenue from existing customers after expansions, contractions, and churn, as a percent of starting revenue.

Annual Recurring Revenue (ARR)

The annualized value of all active subscriptions or recurring contracts.

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This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.