What is Customer Lifetime Value (LTV / CLTV)?
Customer Lifetime Value (LTV or CLTV) is the total revenue expected from a customer account over the entire duration of their relationship with your company.
Customer Lifetime Value (LTV or CLTV) is the total revenue expected from a customer account over the entire duration of their relationship with your company.
Simple formula: LTV = ARPA × Customer Lifetime
More precise: LTV = ARPA / Monthly Churn Rate
Where ARPA = Average Revenue Per Account
Example: - ARPA: $500/month - Monthly churn rate: 2% - LTV = $500 / 0.02 = $25,000
LTV is the most important metric to pair with Customer Acquisition Cost (CAC). The LTV:CAC ratio determines whether your unit economics are sustainable.
Why It Matters
LTV tells you the ceiling on what you can spend to acquire a customer and still make money. If your LTV is $25,000, you can afford to spend up to ~$8,000 on acquisition (3:1 ratio). Technical debt that causes churn directly reduces LTV.
How to Measure
Divide average revenue per account by your monthly churn rate. For more precision, model by cohort and segment.
Frequently Asked Questions
How does technical debt affect LTV?
Technical debt degrades product quality, which increases churn rate, which directly reduces LTV. A 1% increase in monthly churn can cut LTV by 33%. This is why technical debt is a financial metric, not just an engineering one.
Related Terms
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Richard Ewing is a Product Economist and AI Capital Auditor. He helps companies translate technical complexity into financial clarity.
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