Lifetime Value (LTV): How to Calculate Revenue and Profit

Updated September 19, 2026· 7 min read

What is lifetime value?

Lifetime value (LTV, also called CLV) estimates the revenue or gross profit a customer contributes over a defined relationship horizon. Stripe’s simple teaching formula is average transaction value × average number of transactions × customer lifespan. If the transaction count is a per-year frequency, lifespan must also be in years. The number is only usable when you state the horizon, the value basis, and which customers are included.

LTV also connects with cost per acquisition (CPA) and churn rate. Compare LTV with CAC when both use the same acquisition cohort and customer definition, CAC uses a documented acquisition-cost window and cost basis, and LTV uses a named value horizon. When you compare cohorts, use a consistent elapsed-value horizon. CAC occurs around acquisition. LTV then accrues over that separate horizon.

Historical, cohort, and predictive LTV

Label	What it is	What to state
Historical / realized LTV	Observed value to date for active or ended relationships	Elapsed time, and whether remaining life is censored
Cohort	A grouping dimension such as acquisition period or product	The grouping used; it can sit on observed or predictive LTV
Predictive LTV	A forecast of future value	Model error and the assumptions in the forecast

These labels answer different questions. They are not three mutually exclusive methods. Historical or realized LTV is observed value to date, including customers who are still active and customers who already left. State elapsed time and whether remaining life is censored. Cohort is a grouping dimension. You can apply it to observed or predictive LTV so a new channel or product is not blended into an old one. Predictive LTV forecasts future value and carries model error. None of this is a causal test of a marketing tactic.

Revenue versus gross-profit LTV

Decide the money you are totaling before you multiply.

• Revenue LTV totals sales, recurring charges, or another top-line definition.
• Gross-profit LTV multiplies that total by gross margin, or otherwise subtracts cost of goods, so acquisition decisions are compared with gross profit, or another margin-adjusted value, rather than revenue.

A high-revenue customer with thin margin can be worth less than a lower-revenue customer with healthier margin. State which basis you used next to the number.

Formula and worked example

Stripe’s simple method:

LTV = average transaction value × average number of transactions × customer lifespan

If average number of transactions is a per-year frequency, lifespan must also be in years. Do not multiply a count that already covers the full lifespan by lifespan again.

Hypothetical subscription example, labeled as revenue LTV over four observed years:

Input	Value
Average monthly charge	$80
Paying months per year	12
Observed lifespan	4 years
Revenue LTV	$80 × 12 × 4 = $3,840

Here $80 is average transaction value, 12 is average transactions per year, and 4 years is lifespan, so the units match.

If gross margin on that revenue is 55%:

Gross-profit LTV = $3,840 × 0.55 = $2,112

If blended acquisition cost per customer in that same cohort is $700, and that CAC figure uses a documented acquisition-cost window and cost basis, the four-year gross-profit LTV to CAC ratio is $2,112 / $700, or about 3.0. CAC occurs around acquisition. LTV then counts value over a named horizon, so first-month acquisition spend versus four-year LTV is a standard comparison. The ratio is not valid when the LTV cohort and the CAC cohort differ, when CAC omits costs that belong in the documented cost basis, or when cohort comparisons mix different elapsed-value horizons.

Incomplete cohorts and named LTV horizons

Young cohorts are censored: they have not had time to finish the window you want to report. A cohort acquired six months ago cannot yet show four-year LTV. Options:

• Report a maturity-matched value, such as 6-month LTV for every cohort, including older ones truncated at six months.
• Wait until enough of the cohort has reached the window.
• Use a predictive estimate and show it as a forecast, not as observed history.

Mixing unfinished cohorts into a “lifetime” average understates LTV if remaining life is still ahead, or it makes channels look better or worse because of age rather than quality.

Google Analytics includes an Average 120d value metric: for each user, it sums purchase, subscription, and ads revenue for the first 120 days, then averages that figure across users. That is a 120-day value, not universal lifetime value. GA4’s separate LTV metric is also a defined platform total of selected purchase events minus refunds, not a complete economic lifetime.

How should teams apply lifetime value?

• Name the decision: bid cap, payback, retention investment, or packaging.
• Choose revenue or gross profit before calculating.
• Build cohorts by acquisition period or product.
• Compare LTV with CAC on the same acquisition cohort and customer definition, a documented acquisition-cost window and cost basis, and a named LTV horizon. When you compare cohorts, use a consistent elapsed-value horizon.
• Update the model when retention, pricing, or margin changes.

Our view at Anderson Collaborative: The most useful LTV model is often the simplest one people will refresh. We add complexity only when it changes an acquisition or retention decision.

Put cohort LTV, the named horizon, and a disclosed CAC cost scope in the same reporting and analysis view so acquisition decisions are not compared from isolated channel exports.

Frequently Asked Questions

What is lifetime value?

Lifetime value is an estimate of the revenue or gross profit a customer contributes across a defined relationship horizon. It is not automatically the same as a platform metric labeled LTV.

What is the difference among historical, cohort, and predictive LTV?

Historical or realized LTV is observed value to date for active or ended relationships, with elapsed time and censoring stated. Cohort is a grouping dimension, such as acquisition period or product, and can be used with observed or predictive LTV. Predictive LTV forecasts future value and carries model error.

Should LTV use revenue or gross profit?

Choose the basis before you calculate. Revenue LTV totals sales, recurring charges, or another top-line definition. Gross-profit LTV multiplies that total by gross margin, or otherwise subtracts cost of goods, so you compare acquisition spend with gross profit, or another margin-adjusted value, rather than revenue.

How do you compare LTV with CAC?

Compare LTV with CAC on the same acquisition cohort and customer definition, a documented acquisition-cost window and cost basis, and a named LTV horizon. When you compare cohorts, use a consistent elapsed-value horizon. CAC occurs around acquisition. LTV then accrues over that separate horizon.

Sources

• Stripe, Customer lifetime value
• Google Analytics, Average 120d value