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The Internet Compass

Metrics

Customer Lifetime Value (LTV)

Also known as: LTV, CLV

Customer Lifetime Value is the total gross profit a customer is expected to generate over the life of the relationship, usually estimated as average revenue per account multiplied by gross margin, divided by churn rate.

The common error is computing LTV on revenue rather than gross profit, which inflates the figure by whatever the cost of service happens to be.

An LTV:CAC ratio of 3:1 is the conventional benchmark. Materially higher ratios often indicate under-investment in growth rather than exceptional efficiency.