Lifetime Value
Table of Contents
Lifetime value (LTV) is a key metric used in sales operations to measure the total revenue that can be generated from a customer over the entire course of the business relationship.
Full definition
Lifetime Value (LTV), also known as Customer Lifetime Value (CLV), is a metric that estimates the total revenue a business can expect to earn from a customer over the entire duration of their relationship.
It measures the long-term financial value of each customer, rather than focusing on individual transactions. Lifetime Value helps companies understand how much they can invest in acquiring and retaining customers while remaining profitable.
LTV is typically calculated using factors such as average revenue per customer, purchase frequency, retention rate, and customer lifespan. In subscription businesses, it often reflects the average monthly revenue multiplied by the average number of months a customer remains active.
A high Lifetime Value indicates strong retention, customer satisfaction, and sustainable revenue growth. It is one of the most important metrics in SaaS, marketplaces, subscription services, and recurring revenue business models.
Use cases
Evaluating profitability of customer acquisition.
Determining how much can be spent on marketing and sales.
Forecasting long-term revenue.
Measuring customer retention performance.
Comparing customer segments by value.
Supporting pricing and growth strategies.
Visual funnel
Customer acquired
↓
Customer generates recurring revenue
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Customer continues relationship over time
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Revenue accumulates across lifecycle
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Lifetime Value calculated
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Insights used for growth and optimization
Frameworks
Subscription LTV framework
Calculates value based on recurring revenue and retention.
Revenue per customer framework
Measures average customer contribution.
Retention-based LTV model
Uses churn and retention rates to estimate lifespan.
Cohort-based LTV framework
Tracks value across customer groups.
Unit economics framework
Connects LTV to acquisition cost and profitability.
Common mistakes
Ignoring churn when calculating LTV.
Using short-term data for long-term projections.
Overestimating customer lifespan.
Failing to segment customers by value.
Not updating LTV regularly.
Using inconsistent calculation methods.
Etymology
The term "lifetime value" combines "lifetime," meaning the duration of a relationship, and "value," meaning financial worth. The concept became widely used with the rise of subscription and recurring revenue business models.
Localization
EN: Lifetime Value (LTV)
FR: Valeur vie client
DE: Kundenlebenszeitwert
ES: Valor de vida del cliente
UA: Життєва цінність клієнта
PL: Wartość życiowa klienta
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