Customer Lifetime Value (CLV / LTV)
Total revenue expected from a customer over their entire relationship
What is Customer Lifetime Value (CLV / LTV)?
Customer lifetime value is the total profit a customer is expected to generate over the whole relationship. It shows what a customer is worth to the business.
It sets a ceiling on how much it makes sense to spend to acquire and keep customers.
How this KPI is measured
- Function
- Customer Success & Service
- Sub-function
- Unit Economics
- Industry
- All Industries
- Type
- Lagging
- Impact
- Revenue
- Unit
- $
- Measurement frequency
- Quarterly / Annual
- Formula
- (Average MRR per customer × Gross margin %) / Monthly churn rate
How to calculate it
Multiply the average monthly recurring revenue per customer by gross margin percentage, and divide by the monthly churn rate.
For example, with average MRR of 1,000, a gross margin of 80% and monthly churn of 2%, lifetime value is (1,000 x 0.8) / 0.02 = 40,000.
The result is very sensitive to churn, so use a realistic, stable churn rate, and calculate by segment.
Where it is used
Setting acquisition budgets
Decide how much to spend per customer.
Prioritising segments
Focus on the most valuable.
Judging retention investment
See the value of keeping customers.
How to improve it
Tips and common mistakes
- Small changes in churn change the result a lot.
- It is an estimate. Treat it as a guide.
- Do not use it without acquisition cost.
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