CAC ceiling
Know how far to push ads.
What is LTV (lifetime value)?
LTV (Lifetime Value or CLV) estimates the revenue (often margin) a customer generates over the entire relationship. Commonly: average order × purchase frequency × retention length (or finer cohort models). Paired with CAC, it shows whether acquisition is sustainable.
In one sentence
LTV estimates how much a customer is worth over the relationship lifetime.
Key points
- Prefer margin over gross revenue when variable costs are high.
- Use real cohorts rather than one fantasy number.
- LTV sets max acceptable CAC and retention priorities.
- Improving LTV (upsell, churn) can beat hunting new customers.
Term at a glance
- LTV
- lifetime value · CLV · customer lifetime value
- English term
- Customer Lifetime Value (CLV/LTV)
- Domain
- Marketing / finance
- Category
- Unit economics
- Level
- Intermediate
What does LTV mean?
A simple LTV (ticket × purchases/year × years) is enough for many SMEs; predictive models come later.
Segment (enterprise vs SMB, subscribers vs one-shot) to avoid a misleading average.
LTV moves with pricing, service, and churn—it is not a constant.
How do you estimate LTV?
- 01
Choose revenue or margin
Document the choice; margin is safer for CAC tradeoffs.
- 02
Measure retention
Repurchase rate, subscription churn, average relationship length.
- 03
Compute by cohort
Customers acquired in T1, T2… and cumulative contribution.
- 04
Link to CAC
Set acquisition ceilings and retention/upsell priorities.
A concrete example
A B2B SaaS bills CA$200/month, 80% margin, 24-month average retention → LTV ≈ 200 × 0.8 × 24 = CA$3,840. With CAC of CA$900, LTV:CAC ≈ 4.3.
What is LTV for?
Prioritize retention
Cut churn vs buying more leads.
Segmentation
Invest more in high-LTV segments.
Product roadmap
Features that increase usage and duration.
Pros and cons
- Long-term view
- Clarifies CAC
- Guides retention
- Shared finance/marketing language
- Assumption-sensitive
- Needs history
- Misleading averages
- Predictive complexity
LTV vs average order value
| LTV | AOV / average ticket | |
|---|---|---|
| Horizon | Full relationship | One transaction |
| Use | Acquisition tradeoffs | Pricing / merchandising |
| Data | Retention + frequency | Checkout |
| Risk | Over-optimism | Ignores recurrence |
Why LTV matters for Quebec SMEs
Acquiring a local customer is expensive. Maximizing lifetime value (contracts, maintenance, repurchase) makes marketing profitable even with a high CAC.
FAQ
LTV or CLV?
Common synonyms (Lifetime / Customer Lifetime Value).
Gross or margin?
Margin is better for CAC decisions.
One-shot customers?
Their LTV ≈ first-purchase margin—segment them.
Predictive required?
No; start simple and iterate.
Link to ROI?
LTV−CAC feeds acquisition return logic.
Related terms
Sources and references
Need a credible LTV to frame ad budgets? We can model it simply.
Estimate LTV