Lifetime value (LTV) is the total expected amount of revenue generated from a typical customer. It is one of the key tools for judging the viability of your business.
How to use it:
- Use LTV to give you an idea of how much money you can spend to acquire and service a customer.
- Aim for an LTV to CAC (Cost to Acquire a Customer) ratio of at least 3:1.
The basics of how we calculate LTV:
- We use the simple, well-known formula of dividing the average revenue per customer by the churn rate.