The estimated value a customer may generate during the complete business relationship.
Customer Lifetime Value (LTV or CLV) projects the net gross profit that a customer will generate throughout their commercial engagement with the company.
The total cumulative profit you can realistically expect to make from an average client before they stop doing business with you.
A corporate client pays ₹50,000 every month for facility services with a 40% gross margin and stays for an average of 36 months. Their lifetime value to your business is ₹7,20,000.
Average annual billing per client: ₹2,00,000. Gross margin: 50% = ₹1,00,000 annual gross profit. Average customer retention lifespan: 4 years. LTV = ₹1,00,000 × 4 = ₹4,00,000.
Founders often overestimate LTV by assuming customers will stay forever, or by calculating LTV on total revenue rather than gross profit after service fulfillment costs.
LTV defines the upper ceiling for customer acquisition and onboarding expenditure. Increasing retention by 5% often produces a disproportionately large expansion in LTV.