Lifetime Value (LTV)
The total revenue a business can expect from a single customer account over the entire duration of their relationship, accounting for recurring payments, expansion, and churn probability.
LTV answers the question: how much is a customer worth? For subscription businesses, a simple formula is LTV = ARPU / Monthly Churn Rate. A customer paying $100/month with 5% monthly churn has an LTV of $2,000. More sophisticated models account for expansion revenue, discount rates, and variable churn across customer lifetime stages.
LTV is the ceiling on what you can sustainably spend to acquire a customer. If LTV is $2,000, spending $600 on acquisition (3:1 LTV:CAC) is healthy. Spending $2,500 destroys value. This makes LTV the most strategically important metric for growth investment decisions: it determines your acquisition budget, channel mix, and go-to-market strategy.
Predictive LTV models use ML to estimate individual customer value at the time of acquisition or shortly after, enabling real-time decisions about how much to spend acquiring or retaining each customer. Features like company size, industry, signup behavior, and early usage patterns predict LTV with surprising accuracy. These predictions power differentiated treatment: high-LTV customers get white-glove onboarding, while low-LTV customers get self-serve flows that keep acquisition costs proportional to their value.
Related Terms
Growth Loop
A self-reinforcing cycle where each cohort of users generates inputs (data, content, referrals) that attract the next cohort, creating compounding growth.
Churn
The rate at which customers stop using or paying for a product over a given period, typically measured as monthly or annual churn percentage.
Activation Rate
The percentage of new signups who complete a key action (the 'aha moment') that correlates with long-term retention and product value realization.
Product-Led Growth (PLG)
A go-to-market strategy where the product itself drives acquisition, activation, and expansion through self-serve experiences rather than sales-led motions.
Viral Coefficient (K-Factor)
The average number of new users each existing user brings to the product, where a K-factor above 1.0 indicates self-sustaining viral growth.
Net Revenue Retention (NRR)
The percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn — where 100%+ indicates growth without new customers.