Is each new customer worth more than they cost to win?
The value a customer generates over the whole relationship, compared with the cost of winning them. It is one of the clearest tests of whether a business's growth is building value or burning it.
Get a finance reviewLTV = Average monthly revenue per customer × Gross margin % × Average customer lifetime (months). Ratio = LTV ÷ CAC
Around 3:1 is the widely used benchmark. Below 1:1 means each new customer loses money; well above 5:1 may mean the business is underinvesting in growth.
Customer lifetime value (LTV) is the gross margin a typical customer produces over the time they stay. It is divided by customer acquisition cost (CAC) to show how many times over the business earns back what it spends to win each customer.
A business can grow quickly by overspending to win customers who do not stay long enough to repay the cost. LTV to CAC exposes that. It guides how much the business can afford to spend on marketing, which customer segments to target and whether retention or acquisition deserves more attention. Investors and buyers use it as a shorthand for the quality of a growth model.
Base lifetime value on gross margin, not revenue, and on actual retention data, not hopeful assumptions. Be cautious with young businesses: lifetime is hard to estimate until customers have been around for a while, so use a capped period such as three years. Look at the ratio by segment and channel, as the average often hides segments that are unprofitable to win.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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