Product metrics and goals
Customer lifetime value (LTV)
Also called LTV, CLV, CLTV
The total profit a business expects from one customer over the whole time they stay. It sets how much you can afford to spend to win them.
How it's worked out
Subscriptions: average revenue per customer × gross margin ÷ monthly churn rate. Shops: average order value × gross margin × orders per customer
Dividing by churn turns a monthly figure into a lifetime one: at 2% monthly churn, the average customer stays about 50 months.
Use gross margin, not revenue, so LTV reflects what a customer is actually worth after the cost of serving them.
In practice
An account paying $103 a month at 80% margin, with 2% monthly churn, is worth about $4,100.
Common mistake
Trusting LTV for a young product. With little history, churn is a guess, and LTV inherits the guess.