Customer Lifetime Value (CLTV)
Total revenue expected from a customer over the relationship.
Overview
CLTV estimates the total economic value a customer generates over their relationship. It connects retention, expansion, and margin into a single strategic figure.
CLTV estimates the total gross‑margin‑adjusted revenue expected from a customer over their lifetime.
Definition
Use margin‑adjusted models and cohorts for precision. Pair CLTV with CAC and payback to calibrate acquisition spend and prioritize retention work.
Customer Lifetime Value estimates the total economic value a customer will generate over their relationship with you. Use margin‑adjusted LTV and cohort models for precision. Combining CLTV with CAC and payback period guides how much you can spend to acquire customers and where to prioritize product improvements that increase retention and expansion.
Simple model
Use average ARPU and churn rate.
Use average ARPU and churn rate or cohort cash flows, adjusted by gross margin, to estimate CLTV.
CLTV = ARPU / churn rate
Example
$40 ARPU, 4% churn → $1,000 CLTV.
Show a simple ARPU/churn example, then contrast with a cohort‑based model for greater accuracy.
Common pitfalls
Using revenue instead of margin, assuming constant churn, or ignoring expansion will skew CLTV.
- Using revenue instead of margin
- Assuming constant churn across cohorts
- Ignoring expansion effects
- Relying on averages that hide segment differences
Benchmarks
Healthy businesses target CLTV/CAC > 3; absolute CLTV depends on ARPU.
Healthy businesses target CLTV/CAC > 3; absolute CLTV depends on ARPU and segment.
Notes
Present confidence intervals for small samples and prefer cohort modeling where data allows.
- Model cohort‑based CLTV for accuracy
- Use confidence intervals when sample sizes are small
Related terms
CLTL connects to CAC, NRR, and ARPU to inform pricing and acquisition strategy.
FAQs
FAQs often cover margin adjustment, churn assumptions, and the choice of average vs cohort models.
Gross margin?
Multiply by gross margin for profitability.