What Is Customer Lifetime Value (LTV)?

Why LTV matters

LTV tells you how much a customer is worth, which tells you how much you can invest to win and keep them.

Businesses with high LTV can afford more aggressive acquisition; low-LTV models must acquire cheaply.

How to think about LTV

At its simplest, LTV combines average revenue, margin, and how long customers stay. Retention is a huge lever.

LTV and CAC together

A healthy ratio of LTV to CAC is the core signal of a sustainable growth model.

In practice

LTV calculated on a rolling average across an entire customer base can hide a lot — a segment of customers who churn within a year and a segment who stay five-plus years will average out to a number that describes neither group accurately, which is why LTV is far more useful cut by segment or acquisition channel than as one company-wide figure.

A common mistake

Using a single blended LTV number to justify acquisition spend across every channel is a common mistake — a channel with a lower CAC but also a lower-LTV customer base can look artificially efficient next to a higher-CAC channel that actually brings in better long-term customers.

Where it fits

LTV is the number that ultimately justifies acquisition spend — a CAC number only makes sense evaluated against the LTV it's meant to earn back, which is why the two are almost always discussed as a ratio rather than in isolation.

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