Finance · business glossary
What is LTV (Customer Lifetime Value)?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
The total profit a business can expect to earn from one customer over the entire span of their relationship, not just their first purchase.
LTV (customer lifetime value) explained
Lifetime value is the total profit you expect from a customer across their whole relationship with your business, not just the first sale.
formula
LTV = Average order value × Purchases per year × Years retained × Gross margin
example
₹1,000 per order × 5 orders a year × 2 years × 40% margin = ₹4,000 lifetime profit.
why it matters
Comparing LTV with CAC shows whether your marketing is profitable. A ratio of 3:1 or more is widely seen as healthy.
common mistake
Using revenue instead of profit, which overstates how much you can afford to spend on acquisition.
Frequently asked questions
What is LTV (customer lifetime value)?
The total profit a business can expect to earn from one customer over the entire span of their relationship, not just their first purchase. Lifetime value is the total profit you expect from a customer across their whole relationship with your business, not just the first sale.
How do you calculate LTV (customer lifetime value)?
LTV = Average order value × Purchases per year × Years retained × Gross margin. ₹1,000 per order × 5 orders a year × 2 years × 40% margin = ₹4,000 lifetime profit.
Why does LTV (customer lifetime value) matter?
Comparing LTV with CAC shows whether your marketing is profitable. A ratio of 3:1 or more is widely seen as healthy.
What is a common mistake with LTV (customer lifetime value)?
Using revenue instead of profit, which overstates how much you can afford to spend on acquisition.
Related terms
CAC (customer acquisition cost)
The total cost — marketing, sales, and related effort — of winning one new paying customer.
Churn rate
The percentage of customers who stop buying or cancel their subscription over a given period.
Unit economics
The revenue and cost of a business at the level of one single unit — one customer, one order, one product — used to judge if the model actually works before scaling it.