Lifetime value

Also called LTV, CLV, Customer lifetime value

The total profit a customer contributes over the whole time they stay with you.

What it means

Lifetime value is the gross profit a typical customer generates across their entire relationship with you — not their first order, and not their revenue.

For a subscription business the usual approximation is monthly gross profit per customer divided by the monthly churn rate.

Why it matters

It is what makes acquisition spend rational. Businesses that only look at the first sale systematically underinvest in acquiring customers and overinvest in discounting to win them.

It also puts a number on retention. If lifetime value is driven by how long people stay, then reducing churn is a growth activity, and usually a cheaper one than acquisition.

What it looks like in practice

Use gross profit, not revenue. A customer paying £10,000 a year at a 15% margin is worth a great deal less than one paying £4,000 at 60%.

Segment it. Most businesses have a group of customers worth several times the average, and knowing who they are changes where the sales effort goes.

The common health check is LTV at least three times CAC.

What to watch out for

Optimistic lifetimes. If you have been trading two years, you do not know what a ten-year customer is worth, and assuming one flatters everything downstream.

Ignoring the cost of serving. Some customers cost more to keep than they contribute, and lifetime value calculated on revenue alone will never show it.

Where to get proper advice

Your own data. If you do not have enough history, use a conservative assumption and label it as one.