Lifetime Value (LTV)

LTV (Lifetime Value, also called CLV or customer lifetime value) is the total value a customer brings to a business over the whole period they keep buying from it or using its product. When you use LTV to set ad budgets, calculate it on profit, not just revenue.

What is LTV?

Andreessen Horowitz (a16z) defines LTV as the present value of the net profit a customer generates over the entire relationship. It points out a common mistake: calculating LTV on revenue or gross margin, which pushes the ceiling on what you can pay to acquire a customer far too high (a16z, 16 Startup Metrics, August 2015).

There are two kinds of LTV. Historical LTV is what a customer has actually spent up to today. Predictive LTV estimates what they will spend in the future, based on a model or a retention curve.

LTV formula

The a16z method has four steps:

1. Revenue per customer per month = Average order value × Orders per month.
2. Monthly contribution margin = That revenue minus the variable costs of serving the customer (cost of goods, shipping).
3. Average lifetime (months) = 1 / Monthly churn rate.
4. LTV = Monthly contribution margin × Average lifetime.

If you only have a few months of data, a16z recommends measuring actual LTV at the 12-month and 24-month marks instead of guessing the lifetime. The app equivalent is cohort LTV at Day 30 and Day 90: cumulative revenue from a group of users who installed in the same week, divided by the number of people in that group.

LTV in analytics and ad bidding tools (2024 to 2026 updates)

• The Lifetime Value report in Universal Analytics was discontinued on January 29, 2024, before UA was shut down completely (Google Analytics Help, updated July 2025).
• GA4 has an LTV metric that adds up purchase, in-app purchase and subscription revenue, then subtracts refunds. The Retention report includes Average 120d value, the average revenue from new users over their first 120 days (Google Analytics Help, accessed October 2026).
• GA4’s Predicted revenue metric estimates the revenue expected over the next 28 days from users who were active in the last 28 days. To use it, you need at least 1,000 returning users who purchased and 1,000 who did not within a 7-day period (Google Analytics Help, Predictive metrics, accessed October 2026).
• Customer lifecycle goals in Google Ads let you bid more for new customers (New Customer Value) or for high-value new customers (High Value New Customer, on Performance Max and Search), or target existing customers who have not bought in a while (Retention). Both new-customer modes require a Purchase conversion goal and value-based bidding (Google Ads Help, accessed October 2026).

Hypothetical LTV calculation

An online cosmetics brand has an average order value of VND 350,000. Customers place 0.5 orders per month on average, variable costs make up 60% of revenue, and monthly churn is 10%.

• Revenue per customer per month = 350,000 × 0.5 = VND 175,000.
• Contribution margin = 175,000 × 40% = VND 70,000.
• Lifetime = 1 / 10% = 10 months.
• LTV = 70,000 × 10 = VND 700,000.

On a revenue basis, LTV would be VND 1,750,000, which is 2.5 times higher. If acquiring a customer costs VND 500,000, the revenue figure looks very safe. LTV based on contribution margin gives a ratio of only 1.4:1.

LTV vs ARPU vs ROAS

Frequently asked questions

What is a good LTV:CAC ratio?

HubSpot suggests about 3:1 (HubSpot, October 2025), but the right benchmark depends on your industry and on whether LTV is calculated on revenue or on profit. See the entry on CAC.

How are LTV and ARPU related?

ARPU is revenue per user in a given period. Add up ARPU across all the periods a user stays, subtract variable costs, and you have LTV.

If you want to set ad goals around customer value instead of order count, see our App User Acquisition solution or contact Adtek.