LTV
Customer lifetime value — the gross profit a single customer is expected to generate over the entire time they stay with a business.
LTV is the other half of every honest growth conversation. It estimates the gross profit you will earn from a customer across their full relationship — accounting for retention, expansion, and margin, not just the first sale.
The classic formula is (average order value × purchase frequency × gross margin) ÷ churn rate, but the right shape depends on the business model. Subscription businesses can use a contribution-margin LTV; transactional businesses need a cohort-based view.
The number to watch is the LTV-to-CAC ratio. A healthy ratio is roughly 3:1 or better — anything below that means the business is paying too much to acquire customers, or losing them too fast.