What is customer lifetime value?

Lifetime value (LTV, sometimes CLV) is the revenue or profit a customer is expected to bring over the whole relationship. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. A plumber pays $100 a month and stays 20 months. Revenue LTV is $2,000. That $2,000 is the ceiling for what the software company can spend to win them. It is not the first invoice.

How do you calculate LTV?

For a subscription, multiply the monthly fee by how many months the customer stays. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. $100 a month times 20 months is a $2,000 LTV (customer lifetime value). For a shop that sells a product more than once, a common starting point is average order value times how often they buy times how long they stay. What this month's new customers actually spent (cohort LTV) beats a single average. Do not call the first order lifetime value.

LTV:CAC is lifetime value divided by customer acquisition cost (what it cost to win the customer). Let's take a software company as an example. They sell a monthly tool to plumbing businesses. If the software company's LTV is $2,000 and CAC is $400, the ratio is 5:1. Teams often quote 3:1. That ratio only means something if both numbers use the same window and the same cost pile. Payback time (how many months until the $400 CAC comes back in cash from the $100 monthly fee) is the question hiding inside it.

Glossary

LTV (Customer lifetime value)

LTV is how much money one customer is expected to spend with you over the whole time they stay a customer. LTV stands for lifetime value. If someone pays $100 a month and stays 20 months, LTV is $2,000. That number helps you decide how much you can spend to win them. The first purchase is not the whole lifetime.

Theodor Lindfors, Founding Marketer · August 31, 2026

Formula

LTV ≈ average order value × purchase frequency × customer lifespan

How to calculate LTV

Pick the shape of the business first. A monthly subscription's LTV (customer lifetime value) is fee times months they stay. A shop that sells again is average order value times how often they buy times how long they stay. Both are sketches. What a real group of new customers actually spent is better.

Let's take a software company as an example. They sell a monthly tool to plumbing businesses. The software is CRM (customer relationship software) that helps a plumber keep jobs and follow-ups in one place. A typical plumber pays $100 a month and stays about 20 months before they cancel. $100 × 20 = a $2,000 revenue LTV (customer lifetime value). That $2,000 is revenue, not profit. Support, the product team, and payment fees still come out of it.

Averages hide a few long-staying plumbers and a lot of one-month trials. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. What this month's new plumbing customers actually paid, month by month (cohort LTV), beats a single $2,000 lifetime-value figure on a slide.

Why LTV matters

Without LTV (customer lifetime value), CAC (customer acquisition cost: what it costs to win one paying customer) has no scale. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. The software company's $400 CAC looks expensive next to the first $100 invoice. It looks fine next to $2,000 of revenue over 20 months.

LTV (customer lifetime value) also decides how hard you can push budget allocation. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. A LinkedIn campaign (a group of ads with its own budget) can look slow on 7-day ROAS (return on ad spend: credited sales divided by ad spend) because a plumber has not subscribed yet. If those plumbers stay for the software company's typical 20 months, starving that channel is how you cut the good customers.

How to read LTV

Say two things on the slide whenever you quote LTV (customer lifetime value):

Revenue LTV or profit LTV. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. The software company's $2,000 figure is revenue. Profit LTV is smaller, and it is the one that can actually pay for ads.
The window: 12-month, 20-month, or predicted lifetime. Predicted LTV (customer lifetime value) is a model, not a bank deposit.

If you only have an average LTV (customer lifetime value), say so. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. If you cannot compute LTV yet, name the proxy (how many plumbers are still paying at month 6) and do not call it lifetime value. A named proxy is usable. A fake lifetime number is not.

LTV:CAC

LTV:CAC is lifetime value divided by CAC (customer acquisition cost). Let's take a software company as an example. They sell a monthly tool to plumbing businesses. $2,000 LTV and $400 CAC is 5:1. Teams often quote 3:1 as healthy. That ratio only holds if both numbers use the same window and the same cost pile. Do not pair a 24-month LTV with a paid-only CAC and call it the company ratio.

Payback time is the cash question hiding inside LTV:CAC. Let's take a software company as an example. They sell a monthly tool to plumbing businesses. A $400 CAC (customer acquisition cost) against a $100 monthly fee comes back in 4 months, if the plumber does not cancel. A 5:1 ratio on 20-month LTV (customer lifetime value) can still break the month if payback is 14 months and the software company does not have the cash to wait.

Common LTV mistakes

Using the first invoice and calling it LTV (customer lifetime value). Let's take a software company as an example. They sell a monthly tool to plumbing businesses. The first $100 is not the $2,000 lifetime.
Pairing a 20-month LTV (customer lifetime value) with a weekly ROAS (return on ad spend) target and wondering why cash is tight.
Forgetting churn (customers cancelling). Let's take a software company as an example. They sell a monthly tool to plumbing businesses. If half of the plumbers cancel by month 4, the $2,000 average LTV is a story about the ones who stayed, not a plan for the next 200 signups.

Lemonado

How Lemonado helps with LTV

LTV (customer lifetime value: the revenue or profit one customer is expected to bring over the whole relationship) does not live in the ads manager. It lives in revenue data. Lemonado connects ads to Stripe and the rest of the stack, so LTV:CAC (lifetime value divided by customer acquisition cost) can sit in the same Studio (a live report workspace) as this week's spend instead of a quarterly finance file.

Ask for LTV (customer lifetime value) next to paid CAC (customer acquisition cost) on a client and you get one answer from live sources. Not two teams with two spreadsheets.

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