What is Customer Lifetime Value (LTV)?
The total profit a customer is expected to generate over their whole relationship with you.
Customer Lifetime Value (LTV): definition
LTV translates loyalty into a number. It multiplies what a customer pays, their gross margin, and how long they stay, to estimate the profit they generate over their lifetime. Because it caps what you can rationally spend to acquire a customer, LTV is inseparable from CAC. Using gross-margin profit - not revenue - keeps the figure honest, since serving customers has a cost.
Customer lifetime value (simple)
LTV = ARPA × Gross Margin % × Average Customer Lifetime
Average customer lifetime ≈ 1 ÷ churn rate. Some models discount future cash flows for a more precise present value.
How Fintra handles it
Fintra estimates LTV from actual revenue per customer, real gross margin, and retention drawn from cohort data - not a hopeful spreadsheet assumption. Because it sits beside CAC and payback on the same model, you see whether the LTV justifies acquisition spend, and scenarios show how better retention or margin lifts lifetime value.
- LTV built from real ARPA, gross margin, and cohort-based retention
- Shown with CAC and payback to judge acquisition spend
- Scenarios reveal the LTV impact of retention and margin gains
Worked example
Frequently asked questions
How do you calculate customer lifetime value?
A simple approach multiplies average revenue per account by gross margin and average customer lifetime (roughly 1 divided by churn rate). More precise models discount future gross-margin cash flows to present value. Using gross margin rather than revenue keeps LTV realistic.
Why use gross margin instead of revenue in LTV?
Because serving customers costs money. Revenue-based LTV overstates value by ignoring the cost to deliver the product or service. Gross-margin LTV reflects the actual profit a customer generates, which is what you can spend to acquire and retain them.
How does churn affect LTV?
Strongly - average customer lifetime is roughly the inverse of the churn rate, so small changes in churn move LTV a lot. Cutting monthly churn from 3% to 2% extends average lifetime from about 33 to 50 months, sharply increasing lifetime value.
What is a good LTV to CAC ratio?
Around 3:1 is a widely cited healthy benchmark - customers are worth roughly three times what they cost to acquire. Below that, acquisition may be too expensive; well above it may signal underinvestment in growth. Judge LTV together with CAC and payback.
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