What is Lifetime Value?

Ruben Buijs

Founder & Digital Consultant

Written on Aug 1, 2023

2 minutes

Lead generation

Lifetime Value (LTV) is a crucial metric in the field of lead generation that helps businesses determine the long-term worth of a customer. It refers to the predicted revenue a customer is expected to generate over the course of their relationship with a company. By understanding the lifetime value of their customers, businesses can make informed decisions about marketing strategies, customer acquisition costs, and overall profitability.


Let's consider an example to illustrate the concept of Lifetime Value. Suppose a subscription-based streaming service has an average monthly subscription fee of $10 and the average customer stays subscribed for 24 months. In this case, the Lifetime Value of a customer would be $240 ($10 x 24). This means that, on average, each customer is expected to generate $240 in revenue during their relationship with the company.


Understanding the Lifetime Value of your customers is vital for several reasons. Firstly, it allows businesses to allocate their marketing budget more effectively. By knowing how much revenue a customer is likely to generate over time, companies can determine how much they are willing to spend on acquiring each customer. This information helps optimize marketing strategies and ensures that customer acquisition costs remain reasonable.

Moreover, Lifetime Value provides insights into customer loyalty and retention. By analyzing LTV data, businesses can identify which customers are most valuable and focus on retaining them. This not only helps in building long-term relationships but also reduces churn rates and associated costs.

How to Use Lifetime Value

To calculate the Lifetime Value of your customers, you need to consider the following steps:

  1. Determine the time frame: Decide on the period for which you want to calculate the Lifetime Value. It could be a month, a year, or any other suitable duration.
  2. Calculate revenue per customer: Calculate the average revenue generated by each customer during the chosen time frame.
  3. Calculate customer lifespan: Determine the average length of time a customer remains engaged with your business.
  4. Multiply revenue per customer by customer lifespan: Multiply the revenue per customer by the customer lifespan to obtain the Lifetime Value.

Useful Tips

Here are some useful tips to maximize Lifetime Value and make the most of this metric:

  • Focus on customer satisfaction: Providing excellent customer service and ensuring a positive experience can increase customer loyalty and extend their lifespan, thus increasing Lifetime Value.
  • Upsell and cross-sell: Offer additional products or services to existing customers to increase their overall spending and ultimately boost their Lifetime Value.
  • Encourage referrals: Implement referral programs to encourage satisfied customers to refer their friends and family. This can bring in new customers with higher potential Lifetime Value.
  • Personalize marketing efforts: Tailor your marketing campaigns to specific customer segments based on their preferences, behaviors, and purchasing history. This can enhance customer engagement and drive higher Lifetime Value.


Lifetime Value (LTV) refers to the predicted net profit generated by a customer throughout their entire relationship with a business.
Lifetime Value helps businesses understand the long-term revenue potential of their customers and enables them to make informed decisions regarding customer acquisition and retention strategies.
Lifetime Value is calculated by multiplying the average purchase value by the average purchase frequency and then multiplying the result by the average customer lifespan.
Several factors can influence Lifetime Value, including customer loyalty, repeat purchases, average order value, customer churn rate, and customer acquisition cost.
Businesses can increase Lifetime Value by focusing on customer satisfaction, offering personalized experiences, providing exceptional customer service, implementing loyalty programs, and upselling or cross-selling to existing customers.
No, Lifetime Value and customer profitability are different metrics. Lifetime Value focuses on the overall net profit generated by a customer over their lifetime, while customer profitability analyzes the profitability of individual customers.
Yes, Lifetime Value can vary across different customer segments based on their purchasing behavior, demographics, and preferences. It is important to analyze and understand the Lifetime Value of various customer segments to tailor marketing strategies accordingly.
Businesses can use Lifetime Value to allocate marketing budgets effectively, identify high-value customer segments, personalize marketing campaigns, and prioritize customer retention efforts.
Some limitations of using Lifetime Value include the difficulty in accurately predicting customer behavior over a long period, the reliance on historical data, and the inability to account for external factors that may impact customer behavior.
Yes, Lifetime Value is applicable to various types of businesses, including e-commerce, subscription-based services, retail, and more. Any business that has customers can benefit from understanding and utilizing Lifetime Value.

Article by

Ruben Buijs

Ruben, the founder of Boei, leverages over a decade of consultancy experience at Ernst & Young to optimize lead generation. Boei specializes in converting website visitors into qualified leads. Outside of work, Ruben is passionate about crossfit and enjoys gaming occasionally.

Table of contents

  1. Examples
  2. Importance
  3. How to Use Lifetime Value
  4. Useful Tips
  5. Related Terms

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