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.
LTV for e-commerce
Without subscriptions, LTV = Average order value × Orders per year × Customer lifespan (years) × Gross margin. A customer with a $65 AOV ordering 3 times a year for 2 years brings $390 in revenue; at a 40% margin LTV is $156.
Always use margin, not revenue
Revenue-based LTV overstates customer value — especially at low margins — and leads to overspending on acquisition. The calculator shows both, but base decisions on margin-based LTV.