LTV (User Lifetime Value) is the total net value a single user brings to your product over their full relationship with it. In web analytics, LTV helps you decide how much you can afford to invest in acquisition and retention without lighting cash on fire. Unlike raw revenue, LTV focuses on contribution (revenue minus variable costs) over time.
Plain definition:
LTV estimates the cumulative profit generated by one user across all sessions, purchases, subscriptions, and upgrades until churn.
Why it matters: LTV aligns marketing, product, and finance around sustainable growth. If LTV comfortably exceeds your acquisition and servicing costs, you’re compounding value; if not, you’re subsidizing usage.
Practical formulas
For subscription or repeat-purchase models, a robust yet simple approximation is:
- LTV ≈ ARPU × Gross Margin × Average Lifetime
- Where Average Lifetime ≈ 1 / Churn Rate (per the same time unit as ARPU)
If you operate an order-driven store, swap ARPU for Average Order Value (AOV) and factor in expected orders per user over their lifetime.
Mini example (monthly model):
| Metric | Value |
|---|---|
| Monthly ARPU | $10 |
| Gross margin | 70% |
| Monthly churn | 5% |
| Average lifetime | 1 / 0.05 = 20 months |
| LTV | $10 × 0.70 × 20 = $140 |
Implementation notes
- Time unit discipline: Keep ARPU and churn on the same cadence (monthly with monthly, etc.).
- Segment, don’t average: LTV varies by channel, cohort, geography, and plan. Use cohort analysis to separate new vs. mature users and pinpoint drivers.
- Retention sensitivity: Small improvements in user retention often beat big discounts on acquisition.
- Margins, not revenue: Use contribution margin to avoid overestimating value.
- Attribution window: Tie LTV to a clear observation window (e.g., 6, 12, 24 months) and revisit as cohorts age.
When to use LTV
- Prioritize channels and campaigns by projected payback.
- Set bidding caps and budgets using LTV-to-cost thresholds.
- Evaluate product changes that move ARPU, margin, or churn—even small shifts can materially change LTV.