Gross LTV

Gross LTV is expected lifetime revenue per customer before subtracting the costs of serving or acquiring that customer. It is the revenue version of lifetime value. Terminology varies across organizations, so label it “revenue LTV” or explicitly define “gross.” Revenue is not the same as contribution, profit or cash collected.

Build the estimate from customer activity

Conceptually, add the revenue expected in each period of the relationship, including the possibility that the customer is no longer active. Specify whether the estimate covers the whole relationship from acquisition, the remaining relationship as of today, or a fixed horizon such as 24 months. Also state how refunds, credits and other revenue adjustments enter the measure. Calling the result gross LTV does not justify counting amounts that the chosen revenue definition excludes.

A simple approximation multiplies ARPU per period by expected customer lifetime in the same units. At an assumed constant 50 currency units per active month and an expected 20 active months, gross LTV is 1,000. A 5% end-of-month churn model can produce that 20-month expectation when the first month is included and the same churn probability applies in each subsequent period. Changing purchase frequency, expansion, seasonality or churn over tenure requires a richer period-by-period estimate.

Why multiplying customer averages can mislead

Suppose one customer spends 100 per month for two months and another spends 20 per month for ten months. Each generates 200, so average lifetime revenue is 200. The customer-weighted mean monthly spend is 60 and mean lifetime is six months; multiplying them gives 360. The mismatch occurs because the higher-spending customer stays for less time. Averaging separately discards that relationship.

For a customer’s lifetime-average monthly revenue A and lifetime L, average total revenue is E[AL] = E[A]E[L] + Cov(A,L), when these quantities are defined over the same complete-lifetime customer population. The covariance term records whether high spend and long life tend to occur together. Its sign determines the direction of the product-of-means error. This identity does not specify a universal percentage error for a given correlation: the spreads of A and L matter too.

Weighting can change the calculation. In the two-customer example, revenue per observed customer-month is 400/12, about 33.33. Multiplying that by the complete-lifetime mean of six months gives 200. That arithmetic works because the totals use consistent complete lifetimes. A current-month ARPU and an estimated lifetime from another cohort do not inherit the identity. Define the numerator, denominator and observation window before multiplying averages.

Separate observed revenue from the unobserved future

Customers still active at the end of the data have incomplete lifetimes. Averaging their revenue to date measures accumulated revenue, not full lifetime revenue. Either compare cohorts at a common age, report a fixed-horizon value with a clearly identified forecast portion, or model the remaining tail. An apparently low LTV for a newly acquired cohort may reflect short observation rather than weak customers.

A period-based forecast can combine the probability of being active with expected revenue conditional on activity. That conditional revenue may differ by tenure or segment, especially if high-spending customers retain differently. Discount future amounts if present value is the intended measure, and state the discount rate and timing. A lifetime total does not determine when revenue is recognized or when cash arrives.

Use revenue LTV for a revenue question

Two customers with the same lifetime revenue can produce different contributions. In an illustrative example, each generates 1,000 and incurs 300 of product costs. One also incurs 480 of support costs and the other eight, leaving 220 and 692 respectively. Those additional costs are assumed not to be included in the first 300. Gross LTV ranks the customers equally on revenue; it cannot establish their equal profitability.

Multiplying revenue by a gross margin gives a gross-profit measure under that margin’s cost boundary. A broader contribution LTV can subtract additional attributable costs. If a revenue-based LTV divided by CAC is 3.0 and the relevant contribution margin is 70%, the corresponding contribution-based ratio is 2.1 under the same horizon and assumptions. Neither ratio should be presented without naming its numerator.

Revenue LTV is useful for estimating cohort revenue and comparing expected customer spending. Acquisition affordability needs contribution, timing and risk as well. Keep those questions separate and show which part of the estimate is observed, which is modeled, and which costs are excluded.

References

• Stripe Atlas, SaaS business model — lifetime revenue and churn
• Stripe, Customer lifetime value — definitions and estimation