Customer lifetime value (LTV)

For a subscription business, LTV combines three things: how much a customer pays per period, how much of that is margin, and how long they keep paying. A common simple estimate divides the average monthly revenue per customer, times gross margin, by the monthly churn rate, since one divided by churn approximates the average lifetime in months.

This shortcut assumes a steady churn rate, which is rarely true: churn is often higher in the first months and lower afterwards. Cohort data gives a more reliable picture, and some tools apply a discount rate to future revenue.

LTV is mostly used next to customer acquisition cost (CAC), to judge how much a business can spend to win a customer. Because churn sits in the denominator, reducing churn, including failed-payment churn, raises LTV directly.