# Customer Lifetime Value

*Startups & Venture Capital — Finicade finance glossary*

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`

**Also known as:** CLV, LTV to CAC ratio

**Related terms:** [Customer Acquisition Cost](https://finicade.com/glossary/customer-acquisition-cost), [Churn Rate](https://finicade.com/glossary/churn-rate), [Unit Economics](https://finicade.com/glossary/unit-economics), [Net Revenue Retention](https://finicade.com/glossary/net-revenue-retention), [Gross Margin](https://finicade.com/glossary/gross-margin)

Source: https://finicade.com/glossary/customer-lifetime-value