Short definition
Lifetime value is the total revenue (or gross profit) a single customer generates across the full duration of the relationship.
In depth
LTV is calculated as average order value × purchase frequency × customer lifespan, then optionally multiplied by gross margin to express it in profit terms. For service businesses, LTV often spans referrals — one happy pool builder customer averages 1.4 referred jobs over five years, which should be modeled into LTV. Using LTV correctly lets a business outbid less-sophisticated competitors on the same channels.
Example
A med spa client books three services a year for four years averaging $420 per visit — LTV is $5,040, supporting a CAC of up to $1,500 at a 3:1 target ratio.