Customer Lifetime Value: The Number Every Business Should Track

Acquiring a new customer costs 5–7× retaining one. Lifetime value tells you exactly how much you should be willing to spend on either.

Some calculations matter for a single decision; this one matters for years. Acquiring a new customer costs 5–7× retaining one. Lifetime value tells you exactly how much you should be willing to spend on either.

The simple formula

LTV = average order value × purchases/year × years as customer.

The advanced formula

Include gross margin, churn rate, and discount future cash flows.

LTV:CAC ratio

Healthy ratio is 3:1 or higher. Below 1:1 you're burning money.

How to raise LTV

Cross-sell, upsell, retention programs, longer subscriptions.

Pro tips

  • Segment LTV by acquisition channel — paid social often produces lower-LTV customers than organic.
  • Cohort analysis beats single-number averages. LTV by month tells the real story.

Frequently asked questions

What's a good payback period? Under 12 months is excellent for SaaS, under 18 months for most products.

Should I include service costs? Yes — net LTV after support costs is what really matters.

If you only remember one thing from this post, make it that the inputs matter more than the calculator.

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