Lifetime Value (LTV) or Customer Lifetime Value (CLTV)

Lifetime Value (LTV) or Customer Lifetime Value (CLTV) is the gross profit a customer delivers to your business in their lifetime. It’s the amount of revenue your business will make from a customer over their average lifetime as a customer.

     CLTV = [Average Revenue Per User or Unit (ARPU) X Gross Margin] X Customer Lifetime

EXAMPLE: 

Your average customer pays your business $50 per month (ARPU).

  • It costs your business $10 to deliver your product to the customer. You may know this as the Cost of Goods Sold (COGS).
  • Your average customer lifetime is 18 months.

Therefore, your business CLTV is $720 or ($50 APRU – $10 service cost) X 18 customer lifetime.

EXAMPLE: 

Your average customer pays your business $25,000 per year (ARPU).

  • It costs your business $10,000 to deliver your product to the customer.
  • Your average customer lifetime is 4.5 years.

Therefore, your business CLTV is $67,500 or ($25,000 APRU – $10,000 service cost) X 4.5 customer lifetime.