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Startups & Venture Capital

Customer Lifetime Value

Also called: CLV, LTV to CAC ratio

Lifetime value estimates the gross profit a customer generates over their whole relationship. Its integrity depends on two inputs that are routinely abused: using gross profit rather than revenue, and using an observed churn rate rather than an aspirational one. A ratio of LTV to CAC above 3 is the conventional benchmark, and it means nothing if the churn assumption underneath it is invented.

Formula

LTV = (Average revenue per user × Gross margin) ÷ Churn rate

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