Mathematical Formula

LTV = ARPU * Gross Margin % * Average Lifetime (Months)

What is LTV?

LTV calculates the financial worth of a customer relationship, defining the ultimate budget tolerance of your customer acquisition funnel.

Where is LTV Used?

Enterprise planning, financial evaluations, growth projections, and scaling ratio standards (e.g. target LTV:CAC of 3:1).

What Does It Mean & Strategic Value

High LTV gives organizations a strong cash cushion to bid aggressively in ad auctions, outspending competitors to acquire premium traffic.

Down-Funnel Impact

Tells you whether your business model generates net positive cash or operates at a loss. If LTV is $1,000 and CAC is $250, you are consistently multiplying invested capital.

Real-World Usage & Auditing

Directs long-term business strategy, pricing reviews, and loyalty program investments.

Why LTV Matters for Growth

The single most important valuation metric for recurring-revenue businesses and long-range product strategies.

Operational Example Scenario

If a user pays a subscription of $50 per month, stays for an average of 24 months, and gross margins are 80%, the LTV is $50 * 24 * 0.8 = $960.