Customer Lifetime Value (LTV, sometimes CLV) is the total revenue — or, in a more precise version, total gross profit — a business expects to earn from a single customer over the entire time they stay a customer.
The simple formula
A customer paying $100/month with a 5% monthly churn rate has an expected lifetime of 20 months (1 ÷ 5%), so their LTV is $2,000. The lower the churn rate, the longer customers stick around and the higher their lifetime value.
Why LTV matters
LTV only means something in relation to what it costs to acquire that customer (Customer Acquisition Cost, or CAC). A healthy subscription business typically targets an LTV:CAC ratio of 3:1 or higher — meaning each customer is worth at least three times what it cost to acquire them, leaving enough margin to cover overhead and still profit.
Revenue LTV vs. profit LTV
The formula above gives revenue LTV. A more accurate version multiplies by gross margin to get profit LTV — the actual money left after delivering the product or service, which is the number that should really be compared against CAC.