Lifetime Value

Lifetime Value — LTV — is the total gross profit a customer generates over their entire relationship with your business. Not revenue. Gross profit. Revenue minus the cost of serving them. A customer paying $10,000 per year with 75% gross margin and a 4-year average lifetime generates $30,000 in LTV. That is the number that matters — not $40,000 in total revenue, which ignores the $10,000 in delivery costs. Every LTV calculation I see that uses revenue instead of gross profit is overstating the customer's value by the gross margin gap.

Simple LTV:
  LTV = ARPA × Gross Margin % × Average Customer Lifetime

  Example:
    ARPA (Annual):         $24,000
    Gross Margin:             80%
    Avg Lifetime:          3.5 years
    ─────────────────────────────────
    LTV:                   $67,200

Churn-Based LTV:
  LTV = (ARPA × Gross Margin %) / Annual Churn Rate

  Example:
    ARPA (Monthly):         $2,000
    Gross Margin:             80%
    Monthly Churn:           2.5%
    ─────────────────────────────────
    LTV = ($2,000 × 0.80) / 0.025
    LTV:                   $64,000