Lifetime value (LTV)

Lifetime value, or LTV, is the contribution margin a customer generates per period multiplied by the number of periods they remain a customer. For a subscription business the period is a month and the number of periods comes from churn. For a trades, clinic or retail business it is the average contribution per visit or order times the visits or orders over the years a customer stays.

It matters because it sets the ceiling on acquisition spend and because it changes which customers and channels are worth pursuing. A customer who buys once at a thin margin is worth little, and spending to win more of them is a loss. A customer who returns for years is worth a great deal, and the marketing that finds them deserves a budget. BC owners who measure LTV usually discover that maintenance plans, recalls, renewals and repeat orders are worth more than the first sale.

In practice, LTV is only credible when churn or repeat rate is measured from your own data and the forecast horizon is capped at something you can defend. We calculate it by segment and by channel, compare it with acquisition cost and payback, and use the ratio to set growth spending, pricing of renewals and the priority of retention work. An optimistic LTV built from an industry article is the most common error in a startup's investor deck.