Customer lifetime value

Estimate the contribution margin expected from a customer relationship using observed retention, revenue and cost evidence by cohort.

Quick answer

Customer lifetime value, or LTV, estimates the cumulative economic value of a customer over the relationship under a stated revenue, margin, retention and cost definition. It is commonly reviewed with CAC, payback and cohort retention to assess acquisition economics.

Use the worked example

Meaning and transaction use

An SEC filing defines LTV as average margin on estimated customer lifetime billings and defines the LTV-to-CAC ratio as LTV divided by CAC. [S1]

Another SEC filing defines lifetime value as bookings net of refunds and cost of revenue over the customer life, with a stated CAC definition. [S2]

Proposed control method: calculate LTV by acquisition cohort and reconcile retention, margin and expansion assumptions to observed data.

Worked example

Illustrative customer economics only. Assume monthly revenue of 120, contribution margin of 70% and expected lifetime of 30 months.

Scroll the table horizontally to view all columns.

Measure	Calculation	Result
Monthly contribution	120 x 70%	84
Expected lifetime	Given	30 months
Simplified LTV	84 x 30	2,520
LTV-to-CAC at CAC of 600	2,520 / 600	4.2x

Illustrative LTV is 2,520 and LTV-to-CAC is 4.2x before discounting or unlisted servicing costs.

Proposed transaction review process

Define value

Set revenue, margin, cost, lifetime and cohort basis.

Reconcile cohorts

Tie billing, refunds, costs, retention and churn to records.

Model lifetime

Use observed survival and scenario assumptions beyond available history.

Test economics

Compare LTV, CAC, payback, cash burn and marginal growth.

Evidence checklist

Revenue

Billing, usage, expansion, contraction and refunds.

Margin

Cost of revenue, service, support and variable operations.

Retention

Cohort survival, churn, reactivation and observation period.

Acquisition

CAC definition, channel, cohort and payback.

Decision framework

Situation	Proposed action
History is short	Use scenario ranges and label extrapolation.
Cohorts differ materially	Report segmented values instead of one blended figure.
Margins change with scale	Use scenario-specific contribution margins.
LTV rises while cash worsens	Review payback timing and acquisition growth.

Common errors to check

Using revenue instead of margin.
Assuming perpetual retention.
Mixing cohorts with different economics.
Reporting projected LTV as realised cash.

Build the cohort LTV model

Bring billing, cost and retention cohorts to an LTV review. Reconcile observed economics, extrapolation and acquisition payback.

Discuss the transaction

Primary references and editorial scope

SEC filing: LTV and LTV-to-CAC definitions
Example LTV as customer lifetime margin and LTV-to-CAC ratio definition. Reference checked 17 September 2026.
SEC filing: Cohort lifetime-value basis
Example lifetime value net of refunds and cost of revenue and related CAC definition. Reference checked 17 September 2026.

Editorial qualification

General transaction education using public United States filings. Figures are hypothetical. LTV is a non-standard operating estimate that depends on definitions and forecast assumptions.

General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.