What is LTV (Lifetime Value)?
LTV is the present value of the total net revenue a customer generates over their relationship with the company. The most common formula is LTV = (ARPU × Gross Margin) / Churn — a single number that combines how long a customer stays with how profitably they contribute.
LTV becomes most powerful when compared to CAC. LTV / CAC of 3x or higher signals healthy unit economics. Getting close to 1 means growth is unprofitable; above 5 usually means the business is under-investing in growth. CAC payback under 12 months is a critical threshold for cash-flow sustainability.
The most effective ways to grow LTV are lowering churn, expanding ARPU via upsell and cross-sell and improving gross margin. When product, pricing and customer success share LTV as a KPI, growth becomes more sustainable.