Customer lifetime value (LTV)

Customer lifetime value, or LTV, estimates the gross profit a company expects to earn from a customer over the relationship. A simple subscription version uses average revenue per account, gross margin, and expected lifetime derived from churn. More detailed models account for expansion, contraction, different customer segments, and the time value of money.

LTV can look precise while resting on fragile assumptions. Early companies often have too little history to know long-term churn, and using one month of strong retention can produce an inflated lifetime. For that reason, investors may prefer observable measures such as contribution margin by cohort and customer acquisition payback. In a deck, founders should state the formula, use gross profit rather than revenue, and compare like-for-like customer groups. The familiar LTV-to-CAC ratio is a diagnostic, not a universal target. A high ratio can indicate efficiency, but it can also mean the company is underinvesting in growth or excluding important acquisition costs.