Lifetime Value (LTV)

What is Lifetime Value (LTV)?

Lifetime Value (LTV) is the total revenue a company expects to earn from a customer over the entire duration of their relationship. LTV is a key metric for startups as it helps determine the maximum amount that can be spent on acquiring new customers while still being profitable. High LTV indicates strong customer loyalty and long-term value.

How to Calculate LTV

• Average Purchase Value: Total revenue divided by the number of purchases.
• Average Purchase Frequency Rate: Number of purchases over a given period.
• Customer Value: Multiply the average purchase value by the purchase frequency rate.
• Average Customer Lifespan: The average duration of a customer relationship.
• LTV Formula: LTV = Customer Value × Average Customer Lifespan.

Related Terms and Concepts

Customer acquisition cost (CAC), customer retention, revenue growth, churn rate