---
title: "What Is Lifetime Value (LTV)?"
term: "Lifetime Value (LTV)"
description: "Lifetime value (LTV) is the total gross profit or revenue a business expects from an average customer over the entire relationship — used with CAC to judge whether acquisition spending is economically sound."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["metrics"]
source: https://venturecapitaltracker.com/glossary/ltv
---

# What Is Lifetime Value (LTV)?

> Lifetime value (LTV) is the total gross profit or revenue a business expects from an average customer over the entire relationship — used with CAC to judge whether acquisition spending is economically sound.

**Lifetime value (LTV)** is how much a customer is worth over their full relationship with you — the number you compare to **CAC** to see if growth is profitable.

## How it works

For subscription businesses, a common formula is LTV = (ARPA × gross margin %) / logo churn rate — but cohort-based LTV from actual retention curves is stronger. Marketplaces may compute LTV separately for supply and demand sides.

LTV:CAC ratio and CAC payback period are paired metrics. Investors want definitions consistent across board decks — gross vs net LTV, with or without support costs included.

## Why it matters

- **Founders:** Segment LTV by channel and customer size. Enterprise lands with long payback can still be good if expansion lifts LTV.
- **Investors:** LTV drives allowable CAC and therefore growth spend. Sudden LTV drops often mean product or market problems, not marketing tweaks.
- **Operators:** Support and success teams directly affect retention, which is the biggest lever on LTV.

Include gross margin in LTV, not revenue alone — low-margin businesses need higher lifetime revenue to justify the same CAC. Support and success costs can be subtracted for a "contribution LTV" view favored by some investors.

Payback period pairs with LTV:CAC: a 3:1 ratio with 24-month payback may be worse than 2.5:1 with 6-month payback depending on capital constraints.

## Common mistake

Using company-wide average churn for enterprise accounts that never churn like self-serve users. Segment or the ratio misleads.

## Related ideas

- CAC and payback period
- [Logo retention](/glossary/logo-retention)
- Net revenue retention in SaaS

## FAQ

### What is Lifetime Value (LTV) in simple terms?

LTV estimates how much value one customer generates before they leave. Simple forms multiply average revenue per account by gross margin divided by churn; cohort models track actual revenue over time.

### Why does Lifetime Value (LTV) matter?

Healthy unit economics usually require LTV comfortably above CAC with payback inside a reasonable window. Founders who inflate LTV with optimistic retention assumptions lose credibility in diligence.


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Source: https://venturecapitaltracker.com/glossary/ltv