What Is Customer Lifetime Value (LTV)?

Q: What Is Customer Lifetime Value (LTV)?

Customer lifetime value is the single number that tells you how much a customer is worth in marketing spend, and how much you lose when they leave. Definition, formula, and a worked example.

Customer lifetime value (LTV, sometimes CLV) is the total net profit you expect to earn from a single customer across the entire relationship — not the value of their first deal. It's the number that sets the ceiling on what you can afford to spend acquiring a new customer without losing money on them.

Why it matters

Without LTV, marketing budgets get run on gut feel. You shut down a channel because its cost per customer looks high, when in fact it brings in customers who stay three years. Meanwhile you double down on a cheap channel that delivers customers who churn after two months.

The number also helps you rank priorities inside your team. A rep who closes small deals that renew year after year may contribute more than the colleague who lands one large one-off contract. And in businesses selling subscriptions or maintenance agreements, LTV usually reveals that the real growth battle is in renewals, not acquisition.

How to calculate it

The practical formula:

LTV = average deal value × purchases per year × average customer lifespan in years × profit margin

Where each input comes from:

Input	Source
Average deal value	Total revenue ÷ number of deals closed won
Purchase frequency	Deals per customer per year
Customer lifespan	1 ÷ annual churn rate
Margin	Net profit ÷ revenue

Three things to watch. Calculate on margin, not revenue, or you'll inflate the figure. Break LTV out by segment or customer size, because a single average hides wide gaps. And always compare it against your customer acquisition cost — the widely accepted healthy ratio is at least 3:1.

A worked example

Take a hypothetical company selling an annual subscription at SAR 12,000, with a 60% margin and 20% annual churn — meaning an average customer lifespan of five years.

LTV = 12,000 × 1 × 5 × 0.60 = SAR 36,000.

If acquisition costs SAR 9,000 per customer, the ratio is 4:1 — room to scale. But if churn rises to 33%, lifespan drops to three years and LTV falls to SAR 21,600, pushing the ratio down to 2.4:1. That's a clear signal that the next riyal belongs in the customer success team, not in ads.