LTV (Customer Lifetime Value)
Customer Lifetime Value is the total gross profit a customer generates over their active relationship with the business. Paired with CAC to judge unit economics.
LTV is the revenue a single customer generates — minus cost of goods, fulfillment, and direct service costs — across their lifetime. Different industries define 'lifetime' differently: SaaS often uses 36 or 60 months; DTC ecommerce often uses 12 months as a practical horizon.
LTV:CAC is the foundational unit-economics ratio. A 3:1 or better LTV:CAC means every customer generates at least three times their acquisition cost in gross profit — which makes scaling ad spend sustainable. A 1:1 or lower ratio is a signal to cut spend or raise AOV.
Cohort LTV is the honest metric — measured by looking at actual cohorts over time — rather than predicted LTV, which often overstates via optimistic extrapolation. Fast-growing brands should underwrite ad spend against cohort-backed LTV, not a model.