Unit Economics

LTV: Lifetime Value

The total revenue (or gross profit) you expect from a customer over their entire relationship.

Definition

Lifetime Value (LTV), sometimes LCV or CLV, is the total revenue or gross profit you expect to earn from a single customer over the entire time they remain a customer. The most rigorous LTV is gross-margin-adjusted: revenue × gross margin × expected lifespan.

Formula

LTV = Average Revenue per Customer × Gross Margin × Average Customer Lifespan

LTV = ARPU × Gross Margin × Customer Lifespan (months or years)

Worked example

A customer pays £500/month with 80% gross margin and stays an average of 36 months. LTV = £500 × 0.8 × 36 = £14,400. If CAC is £4,000, LTV:CAC is 3.6:1 — a healthy unit economic.

Why it matters

LTV combined with CAC tells you whether the business model works. The widely cited golden ratio is LTV:CAC of 3:1 or higher. Below 3:1 the business is spending too much to acquire customers relative to what they will be worth. LTV also surfaces the levers (retention, expansion, gross margin) that compound over time.

Common mistakes

  • Using revenue rather than gross-margin contribution when comparing to CAC
  • Assuming infinite customer lifespan in early-stage businesses with little retention data
  • Ignoring expansion revenue, which materially lifts LTV in NRR-positive businesses

Related terms

CACLTV:CACNRRGross MarginChurn

Read more in The Guide

Chapter: Unit Economics →

Sources & further reading

  • — Drawn from Evara's working definitions used on retained search and revenue advisory engagements (2024–2026).
  • — Reconciled against industry conventions in SaaStr, OpenView SaaS Benchmarks and Bessemer State of the Cloud.
  • — Reviewed by Rich Evans, Strategic Advisor at Evara and former operator/founder.

Hiring a leader who needs to own this metric? See our salary benchmarks →

Talk to Evara.

Sales recruitment, GTM recruitment and revenue advisory for SMEs UK-wide. We reply within one working day.

Email Rachel Lunn