Lifetime Value per User
Growth
Efficiency
Industry:
Sector Agnostic
Aliases:
Short Definition
Lifetime Value per User or LTV per User estimates the total gross profit a business expects to earn from an average customer over their entire relationship with the company. It measures the economic value each user contributes to the business — after considering churn, retention, and monetization patterns — and serves as a cornerstone for assessing scalability and return on customer acquisition.
Short Definition
Lifetime Value per User or LTV per User estimates the total gross profit a business expects to earn from an average customer over their entire relationship with the company. It measures the economic value each user contributes to the business — after considering churn, retention, and monetization patterns — and serves as a cornerstone for assessing scalability and return on customer acquisition.
Short Definition
Lifetime Value per User or LTV per User estimates the total gross profit a business expects to earn from an average customer over their entire relationship with the company. It measures the economic value each user contributes to the business — after considering churn, retention, and monetization patterns — and serves as a cornerstone for assessing scalability and return on customer acquisition.
Why it matters for Investors
Unit economics lens: LTV per User, when compared to Customer Acquisition Cost (CAC), defines how efficiently the business turns customer spend into long‑term value. The LTV ratio signals sustainability and payoff of growth investments.
Growth quality indicator: High or expanding LTV trends reflect improving retention, pricing power, or customer engagement — often a sign of product‑market fit.
Valuation driver: In recurring‑revenue or network businesses, LTV per User underpins lifetime gross margin projections and revenue multiples in valuation models.
Cohort signal: Changes in LTV by acquisition cohort show whether new users behave better or worse over time — critical for forecasting long‑term growth efficiency.
Why it matters for Investors
Unit economics lens: LTV per User, when compared to Customer Acquisition Cost (CAC), defines how efficiently the business turns customer spend into long‑term value. The LTV ratio signals sustainability and payoff of growth investments.
Growth quality indicator: High or expanding LTV trends reflect improving retention, pricing power, or customer engagement — often a sign of product‑market fit.
Valuation driver: In recurring‑revenue or network businesses, LTV per User underpins lifetime gross margin projections and revenue multiples in valuation models.
Cohort signal: Changes in LTV by acquisition cohort show whether new users behave better or worse over time — critical for forecasting long‑term growth efficiency.
Why it matters for Investors
Unit economics lens: LTV per User, when compared to Customer Acquisition Cost (CAC), defines how efficiently the business turns customer spend into long‑term value. The LTV ratio signals sustainability and payoff of growth investments.
Growth quality indicator: High or expanding LTV trends reflect improving retention, pricing power, or customer engagement — often a sign of product‑market fit.
Valuation driver: In recurring‑revenue or network businesses, LTV per User underpins lifetime gross margin projections and revenue multiples in valuation models.
Cohort signal: Changes in LTV by acquisition cohort show whether new users behave better or worse over time — critical for forecasting long‑term growth efficiency.
Formula
where:
ARPU = Average Revenue per User (for a given period)
Gross Margin % = Fraction of revenue retained after variable costs
Churn Rate % = Rate at which users stop transacting over that same period
Practical considerations:
Choose consistency: Match the time base of ARPU and Churn Rate (monthly, quarterly, or annual).
Gross vs. Net: Use gross margin dollars, not top‑line revenue, if comparing to CAC — to reflect profit contribution, not just sales volume.
Churn volatility: For startups with short data histories or small samples, avoid using tiny churn values (which can overinflate LTV).
Segment LTV: Compute separately for cohorts (by channel, region, tier, or demographic) to capture meaningful variation.
Adjust for discounting: Discount future cash flows if projecting beyond 12 months, to capture time value of money.
Cross‑check: Ensure LTV per User × Total Users ≈ total expected retention‑adjusted revenue — helps catch calculation drift.
Formula
where:
ARPU = Average Revenue per User (for a given period)
Gross Margin % = Fraction of revenue retained after variable costs
Churn Rate % = Rate at which users stop transacting over that same period
Practical considerations:
Choose consistency: Match the time base of ARPU and Churn Rate (monthly, quarterly, or annual).
Gross vs. Net: Use gross margin dollars, not top‑line revenue, if comparing to CAC — to reflect profit contribution, not just sales volume.
Churn volatility: For startups with short data histories or small samples, avoid using tiny churn values (which can overinflate LTV).
Segment LTV: Compute separately for cohorts (by channel, region, tier, or demographic) to capture meaningful variation.
Adjust for discounting: Discount future cash flows if projecting beyond 12 months, to capture time value of money.
Cross‑check: Ensure LTV per User × Total Users ≈ total expected retention‑adjusted revenue — helps catch calculation drift.
Formula
where:
ARPU = Average Revenue per User (for a given period)
Gross Margin % = Fraction of revenue retained after variable costs
Churn Rate % = Rate at which users stop transacting over that same period
Practical considerations:
Choose consistency: Match the time base of ARPU and Churn Rate (monthly, quarterly, or annual).
Gross vs. Net: Use gross margin dollars, not top‑line revenue, if comparing to CAC — to reflect profit contribution, not just sales volume.
Churn volatility: For startups with short data histories or small samples, avoid using tiny churn values (which can overinflate LTV).
Segment LTV: Compute separately for cohorts (by channel, region, tier, or demographic) to capture meaningful variation.
Adjust for discounting: Discount future cash flows if projecting beyond 12 months, to capture time value of money.
Cross‑check: Ensure LTV per User × Total Users ≈ total expected retention‑adjusted revenue — helps catch calculation drift.
Worked Example
Component | Value | Notes |
|---|---|---|
Average Revenue per User (ARPU, Monthly) | $20 | Revenue per paying user per month |
Gross Margin | 80% | After deducting variable (COGS) costs |
Monthly Churn Rate | 5% | 5% of users leave each month |
LTV per User | (20 × 0.8) / 0.05 = $320 | Expected lifetime gross profit per user |
If average CAC per user is $80, the LTV ratio = 4.0×, indicating strong payback economics.
Notes:
The formula assumes stable ARPU and churn; cohort modeling can refine further.
For subscription models, lifetime ≈ 1 / churn (so at 5% churn → average life of 20 months).
In marketplaces, use contribution margin (after payment fees, refunds, and support costs).
A rising LTV may reflect product improvements, upsell success, or user retention efficiency.
If ARPU rises, churn drops, or margins improve → LTV increases.
LTV links directly to CAC per User (Customer Acquisition Cost per User) for efficiency metrics like LTV/CAC ratio — a key investor signal for sustainable unit economics.
Worked Example
Component | Value | Notes |
|---|---|---|
Average Revenue per User (ARPU, Monthly) | $20 | Revenue per paying user per month |
Gross Margin | 80% | After deducting variable (COGS) costs |
Monthly Churn Rate | 5% | 5% of users leave each month |
LTV per User | (20 × 0.8) / 0.05 = $320 | Expected lifetime gross profit per user |
If average CAC per user is $80, the LTV ratio = 4.0×, indicating strong payback economics.
Notes:
The formula assumes stable ARPU and churn; cohort modeling can refine further.
For subscription models, lifetime ≈ 1 / churn (so at 5% churn → average life of 20 months).
In marketplaces, use contribution margin (after payment fees, refunds, and support costs).
A rising LTV may reflect product improvements, upsell success, or user retention efficiency.
If ARPU rises, churn drops, or margins improve → LTV increases.
LTV links directly to CAC per User (Customer Acquisition Cost per User) for efficiency metrics like LTV/CAC ratio — a key investor signal for sustainable unit economics.
Worked Example
Component | Value | Notes |
|---|---|---|
Average Revenue per User (ARPU, Monthly) | $20 | Revenue per paying user per month |
Gross Margin | 80% | After deducting variable (COGS) costs |
Monthly Churn Rate | 5% | 5% of users leave each month |
LTV per User | (20 × 0.8) / 0.05 = $320 | Expected lifetime gross profit per user |
If average CAC per user is $80, the LTV ratio = 4.0×, indicating strong payback economics.
Notes:
The formula assumes stable ARPU and churn; cohort modeling can refine further.
For subscription models, lifetime ≈ 1 / churn (so at 5% churn → average life of 20 months).
In marketplaces, use contribution margin (after payment fees, refunds, and support costs).
A rising LTV may reflect product improvements, upsell success, or user retention efficiency.
If ARPU rises, churn drops, or margins improve → LTV increases.
LTV links directly to CAC per User (Customer Acquisition Cost per User) for efficiency metrics like LTV/CAC ratio — a key investor signal for sustainable unit economics.
Best Practices
Accurate data: Use historical revenue and retention data to estimate LTV.
Regular updates: Reassess LTV with changes in customer behavior or pricing.
Segmentation: Analyze LTV by customer type, region, or acquisition channel.
Transparency: Disclose LTV calculation methods, including assumptions, in financial reports.
Strategic alignment: Use LTV to optimize customer acquisition cost (CAC) ratios.
Best Practices
Accurate data: Use historical revenue and retention data to estimate LTV.
Regular updates: Reassess LTV with changes in customer behavior or pricing.
Segmentation: Analyze LTV by customer type, region, or acquisition channel.
Transparency: Disclose LTV calculation methods, including assumptions, in financial reports.
Strategic alignment: Use LTV to optimize customer acquisition cost (CAC) ratios.
Best Practices
Accurate data: Use historical revenue and retention data to estimate LTV.
Regular updates: Reassess LTV with changes in customer behavior or pricing.
Segmentation: Analyze LTV by customer type, region, or acquisition channel.
Transparency: Disclose LTV calculation methods, including assumptions, in financial reports.
Strategic alignment: Use LTV to optimize customer acquisition cost (CAC) ratios.
FAQs
Is LTV the same as ARPU?
No. ARPU is revenue per user per period; LTV is total expected revenue (or margin) over that user’s lifespan.Why use gross margin in LTV?
It measures the dollars actually retained after serving the customer. Gross‑margin LTV aligns with cash profitability and ROI assessments.How does churn affect LTV?
Lower churn increases user lifespan, magnifying LTV. Even small churn improvements can dramatically lift total unit economics.Should we use revenue or gross profit?
Use gross profit for comparing with CAC. Revenue‑based LTV can overstate value if delivery costs are high.Can LTV be negative?
Yes — if servicing users costs more than the gross margin they contribute, especially in heavily subsidized growth stages.
FAQs
Is LTV the same as ARPU?
No. ARPU is revenue per user per period; LTV is total expected revenue (or margin) over that user’s lifespan.Why use gross margin in LTV?
It measures the dollars actually retained after serving the customer. Gross‑margin LTV aligns with cash profitability and ROI assessments.How does churn affect LTV?
Lower churn increases user lifespan, magnifying LTV. Even small churn improvements can dramatically lift total unit economics.Should we use revenue or gross profit?
Use gross profit for comparing with CAC. Revenue‑based LTV can overstate value if delivery costs are high.Can LTV be negative?
Yes — if servicing users costs more than the gross margin they contribute, especially in heavily subsidized growth stages.
FAQs
Is LTV the same as ARPU?
No. ARPU is revenue per user per period; LTV is total expected revenue (or margin) over that user’s lifespan.Why use gross margin in LTV?
It measures the dollars actually retained after serving the customer. Gross‑margin LTV aligns with cash profitability and ROI assessments.How does churn affect LTV?
Lower churn increases user lifespan, magnifying LTV. Even small churn improvements can dramatically lift total unit economics.Should we use revenue or gross profit?
Use gross profit for comparing with CAC. Revenue‑based LTV can overstate value if delivery costs are high.Can LTV be negative?
Yes — if servicing users costs more than the gross margin they contribute, especially in heavily subsidized growth stages.
Related Metrics
Commonly mistaken for:
ARPU (Average Revenue per User) (Revenue per user in a given period — reflects short‑term monetization, not total lifetime value)
Customer Lifetime (Tenure) (Duration a user stays active before churning; LTV builds on this by adding revenue and margin impact)
Gross Margin per User (Profit per user per period (ARPU × margin); a component of LTV but without churn or retention effects)
Related Metrics
Commonly mistaken for:
ARPU (Average Revenue per User) (Revenue per user in a given period — reflects short‑term monetization, not total lifetime value)
Customer Lifetime (Tenure) (Duration a user stays active before churning; LTV builds on this by adding revenue and margin impact)
Gross Margin per User (Profit per user per period (ARPU × margin); a component of LTV but without churn or retention effects)
Related Metrics
Commonly mistaken for:
ARPU (Average Revenue per User) (Revenue per user in a given period — reflects short‑term monetization, not total lifetime value)
Customer Lifetime (Tenure) (Duration a user stays active before churning; LTV builds on this by adding revenue and margin impact)
Gross Margin per User (Profit per user per period (ARPU × margin); a component of LTV but without churn or retention effects)
Source of:
Components:
Index