What is Lifetime Value (LTV)?
The predicted revenue that a customer will generate during their entire relationship with your app or business.
Lifetime Value (LTV) represents the total amount of money a customer is expected to spend in your app over the course of their relationship with your business. LTV helps determine how much you can afford to spend on user acquisition while maintaining profitability. It's calculated by multiplying average revenue per user by average customer lifespan.
Why It Matters
LTV is essential for determining sustainable user acquisition budgets and measuring long-term business health. It helps optimize marketing spend by ensuring Customer Acquisition Cost (CAC) remains profitable relative to LTV. Apps with higher LTV can afford higher CPI costs and compete more effectively for quality users in advertising auctions.
How to Calculate
LTV = Average Revenue Per User (ARPU) × Average Customer Lifespan. Alternative formula: LTV = (ARPU × Gross Margin %) ÷ Churn Rate. For example, if ARPU is $5 monthly, gross margin is 80%, and monthly churn is 10%, then LTV = ($5 × 0.80) ÷ 0.10 = $40.
Industry Benchmarks
| Category | Average | Good Performance |
|---|---|---|
| Casual Gaming | $1 - $5 | $10+ |
| Hardcore Gaming | $10 - $30 | $50+ |
| Subscription Apps | $20 - $100 | $150+ |
| E-commerce Apps | $15 - $50 | $80+ |
Best Practices
Calculate LTV by user cohorts to understand quality differences across acquisition channels. Optimize for increasing LTV through better onboarding, engagement features, and retention strategies. Maintain LTV:CAC ratio of at least 3:1 for sustainable growth. Track both short-term (30-day, 90-day) and predicted lifetime values.
Examples
A fitness app calculates 90-day LTV of $25 for premium subscribers versus $3 for free users, focusing acquisition budgets on users likely to convert to premium. A mobile game discovers users acquired through video ads have 40% higher LTV than display ad users, shifting budget allocation accordingly.
Notes
LTV varies significantly by acquisition source, geography, device type, and user demographics. Cohort-based LTV analysis provides more accurate insights than blended averages. Consider both revenue LTV and engagement LTV (value of user actions beyond direct monetization) for comprehensive user value assessment.