Customer lifetime value is the total gross profit a customer generates across their entire relationship with you. You estimate it from average revenue, gross margin, and how long customers stay. LTV sets the ceiling on what you can profitably spend to acquire a customer.

LTV is the budget ceiling nobody calculates before they overspend. If you do not know what a customer is worth over their lifetime, you cannot know what you can afford to pay for one. The biggest lever is usually retention, not acquisition. Extending customer lifespan raises LTV faster than cutting CAC.

Example:

 A customer pays $2,000 per month at 50% gross margin and stays 18 months. LTV is $2,000 x 0.5 x 18 = $18,000.

Should LTV use revenue or gross profit?

 Gross profit. Revenue-based LTV overstates value because it ignores the cost of serving the customer.

What raises customer lifetime value fastest?

 Retention. Keeping customers longer compounds value, and improving retention is usually cheaper than acquiring new customers to replace churn.