Analytics
Understanding Customer Lifetime Value (LTV) Models
Three ways to estimate what a customer is worth, from a quick formula to cohort analysis, and how to use lifetime value to set acquisition targets.
BenchMarketing editorial team Updated October 2, 2026 3 min readShare
Lifetime value is the total gross profit you expect from a customer over the whole relationship. It is the number that tells you how much you can afford to spend acquiring one. Estimating it well is mostly about choosing a method that fits how much data you have.
Model 1: the simple formula
For subscription businesses:
LTV = average monthly revenue per customer × gross margin ÷ monthly churn rate.A customer paying $100 a month at 80% margin, with 4% of customers leaving each month, is worth $100 × 0.8 ÷ 0.04 = $2,000. For ecommerce, swap in average order value, purchase frequency and an expected customer lifespan.
It is fast and good enough for early decisions. Its weakness is that it assumes churn is constant, and it rarely is: customers are most likely to leave in the first few months.
Model 2: cohort analysis
Group customers by the month they joined and track the revenue each cohort produces over time. You see how fast cohorts decay, whether newer cohorts behave better than older ones, and how long it takes to recover acquisition costs. This is the most useful method for most growing businesses once you have a year or more of data.
Model 3: predictive models
With enough history, statistical or machine learning models can estimate the value of each customer from early behaviour: first order value, products bought, channel. These let you bid more for customers likely to be valuable, for example by sending predicted values to ad platforms. They need clean data and periodic checking against what actually happened.
Typical LTV:CAC ratios
| Industry | Median LTV:CAC | Average LTV |
|---|---|---|
| SaaS | 3.5x | $8,200 |
| Ecommerce | 2.8x | $620 |
| Financial Services | 4.2x | $5,600 |
| Healthcare | 3.8x | $3,200 |
| Legal | 3.2x | $4,800 |
| Home Services | 3.6x | $1,800 |
| Real Estate | 2.5x | $12,000 |
| B2B Services | 4.0x | $18,500 |
| Dental | 4.5x | $2,400 |
| Education | 3.1x | $9,800 |
| Automotive | 2.6x | $3,100 |
| Nonprofit | 5.2x | $480 |
Using LTV to set acquisition targets
- Decide how quickly you need to recover acquisition costs, given your cash position.
- Set a target CAC as a share of LTV that leaves room for profit; many teams aim for LTV at least three times CAC.
- Judge acquisition channels by the LTV of the customers they bring, not just their volume. Discount-driven channels often bring customers who never buy again.
Keep margin in the calculation. Revenue-based LTV overstates what you can spend.
Estimate yours with the LTV calculator and compare on the LTV benchmark page.
About the figures
Benchmark figures in this article come from the BenchMarketing dataset and update when the benchmark pages do. Each benchmark page lists its sources and period; see our methodology.
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