Customer Lifetime Value (LTV)

What is Customer Lifetime Value?

The Customer Lifetime Value (LTV) metric indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer's revenue value and compares that number to the company's predicted customer lifespan. Businesses use this metric to identify their most valuable customer segments.
Alternate names: Lifetime Value

How to calculate Customer Lifetime Value

ƒ (Average Revenue Per Account) X (1 / Logo Churn Rate) X (Gross Margin %)

Favourable trend

Up is positive

Level of complexity

Intermediate

Date created: Mar 28, 2018

Latest update: Apr 17, 2019

Contributor:  Pablo Srugo

Tell me more about this metric

There are two methods for calculating LTV - with or without considering Gross Margin (GM) percentage.  The formula referenced below includes GM% and is considered to be the more conservative method to report LTV.

Customer Lifetime Value (LTV) is one of the most important metrics to measure at any growing company. By measuring LTV in relation to Cost of Customer Acquisition (CAC), companies can measure how long it takes to recoup the investment required to earn a new customer, for example, the cost of sales and marketing.

LTV tells companies how much revenue they can expect one customer to generate over the course of the business relationship. The longer a customer continues to purchase from a company, the greater their lifetime value becomes.

What do others say?

More about how to calculate LTV from this Hubspot article

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