PricingNest

LTV (Customer Lifetime Value)

Expected gross profit over a customer's lifetime and key assumptions.

Definition

LTV is the expected gross profit from a customer over their lifetime, based on ARPA, churn, and margin.

Why it matters

LTV guides acquisition spend, pricing decisions, and product investment by showing long-term profitability.

Pricing implications

Higher ARPA and higher gross margin increase LTV; high churn can destroy it quickly.

Measurement tips

Use consistent time windows, segment by plan, and validate with cohort retention data.

Checklist

  • Define ARPA and the time window used.
  • Use gross margin, not revenue.
  • Use logo churn or revenue churn consistently.
  • Segment LTV by plan and channel.
  • Model downside scenarios (p90 churn).
  • Track LTV changes after pricing updates.
  • Align sales comp with LTV targets.
  • Document assumptions and formulas.

Examples

  • LTV = ARPA * Gross Margin / Churn.