What is customer lifetime value (LTV)?
Customer lifetime value is the gross profit a customer is expected to generate over the whole relationship. It combines how much a customer spends each year, the margin on that spend and how long the customer stays. Some versions use revenue instead of gross profit, which inflates the figure, so check which one you are looking at.
Why it matters to a revenue leader
LTV tells a revenue leader how much it is worth spending to win and keep a customer. In commercial services, the value of a customer rarely comes from the first job. An inspection agreement leads to deficiency repairs, upgrades and added sites, so a customer worth a few thousand dollars in year one can be worth many times that over a decade. Renewal rate has an outsized effect on LTV, because it sets how long the customer stays.
How to calculate it
LTV = average annual revenue per customer times gross margin times expected years as a customer. A common shortcut estimates expected years as 1 divided by the annual churn rate. A common mistake is using revenue instead of gross profit.
Example
Fictitious numbersA fire protection company's average customer spends $9,000 a year at 38 percent gross margin, or $3,420 of gross profit. With a 90 percent annual renewal rate, the expected life is ten years, so LTV is about $34,200.
"What is our best customer segment worth over ten years, and are we spending enough to win more of them?"
Sources
- Lifetime Value Calculation (Corporate Finance Institute) checked 9 Oct 2026
- LTV/CAC Ratio (Corporate Finance Institute) checked 9 Oct 2026
- On CUE: The Quest for Optimal Customer Unit Economics (Harvard Business School note, HBR Store) checked 9 Oct 2026