Customer lifetime value (LTV)

LTV estimates what a customer is worth in total, not what they pay this month. The standard formula divides monthly gross profit per account by the monthly churn rate, which is a compact way of saying “average monthly profit multiplied by average expected lifetime.”

The churn rate in the denominator is doing enormous work. At 2% monthly churn the implied lifetime is 50 months; at 1% it is 100 months. Halving churn doubles LTV, which is why retention work compounds in a way that acquisition work does not.

Treat it as an estimate, not a measurement

LTV is a projection built on assumptions that are hardest to justify exactly when the number matters most:

• Young companies have no lifetime data. A two-year-old company computing a 100-month LTV is extrapolating eight years beyond anything it has observed.
• The formula assumes constant churn. Real churn is front-loaded — customers who survive year one churn far less than new ones.
• It ignores expansion unless you use a net-revenue-retention-adjusted variant, which most companies should.
• It must use gross profit, not revenue. LTV on revenue overstates the number by whatever your cost of service is.

For B2B SaaS with meaningful expansion, an NRR-adjusted LTV is more defensible than the simple formula. But the honest use of LTV is comparative — segment against segment, cohort against cohort — rather than absolute.