LTV (customer lifetime value)
Also called: CLV
The revenue or margin a customer is expected to bring over the whole relationship. It is an estimate built from retention and spend, not an observed number.
FormulaLTV ≈ margin per period × expected number of periods a customer stays
How we work it through
- 1
Start from margin, not revenue: what a customer leaves after discounts and delivery.
- 2
Estimate how long customers stay from retention you have actually observed.
- 3
State the horizon. Three weeks of data cannot show a three-year lifetime.
The common trap
Using revenue instead of margin, or a lifetime longer than the data you have, which makes almost any acquisition look profitable.
When an AI answers
An AI assistant
“Customer LTV is €450, so we can spend up to €200 to acquire one.”
- What it didn’t know
- It extrapolated a lifetime far longer than the data and used revenue instead of margin.
- Ask back
- “Which margin and which retention curve is this based on, and how many months of observed data?”
Read next
Examples use Meridian, Atterna’s fictional practice marketplace.