Definition
LTV quantifies the value a customer generates over the whole duration of the relationship - not just at the first purchase. Simplified: average revenue per period × margin × expected lifetime. It shifts the view from the single sale to the relationship.
LTV is the counterpart to CAC. Only together do they form a picture: the LTV:CAC ratio shows whether a business model holds. Below 1, every customer costs more than they bring - no marketing trick fixes that.
The biggest lever for LTV often sits after the purchase: retention, repeat purchase, upsell. Improving retention by ten percent lifts LTV more than any acquisition optimisation - and eases the pressure on CAC at the same time.
Why it matters
LTV sets the budget ceiling for everything before it. Knowing your LTV tells you exactly how much acquisition may cost - and lets you invest more aggressively than a competitor who only looks at the first sale.
In practice
- 01Subscription at €50/month, 70% margin, 24 months average lifetime → LTV ≈ €840.
- 02At an LTV of €840, a CAC of €280 is healthy (3:1 ratio).
- 03Cutting monthly churn from 5% to 3% lifts LTV substantially - often more than any ad optimisation.
