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Glossary
Customer lifetime value
Customer lifetime value (CLV, often also called LTV) estimates the economic value of a customer relationship over its expected life — typically as discounted contribution from retention and expansion after variable servicing costs. Standard operator practice excludes acquisition cost from the CLV estimate and compares CLV to CAC separately (including in CLV/CAC ratios) to avoid double counting.
Why it matters
CLV is used to judge how much can be spent to acquire and serve customers. Weak practice uses revenue “lifetime” without costs, folds CAC into the lifetime number inconsistently, or treats LTV as a single static figure. Stronger practice ties CLV to contribution margin, retention/expansion cohorts, and explicit horizons or discount rates — then evaluates acquisition affordability with CAC as a separate input.
Alias note: LTV is widely used as a synonym in SaaS operator language; it can also mean loan-to-value in finance. In TSS Knowledge, prefer CLV for customer lifetime value and treat LTV as a related alias in this customer-economics sense only.
Example (enterprise): A subscription business estimates CLV from cohort gross retention, net expansion, and contribution margin per account over a 36-month horizon with a stated discount rate — excluding CAC from that estimate — then compares CLV to fully loaded CAC by segment.
Mechanisms
- Retention and expansion — model how long customers stay and whether revenue grows or shrinks.
- Contribution basis — use margin after variable servicing costs, not revenue alone.
- Acquisition separation — keep CAC outside the CLV estimate when using CLV/CAC diagnostics, unless a method explicitly defines a net-of-acquisition lifetime profit measure and labels it as such.
- Horizon and discounting — state the time window and whether future cash is discounted.
Boundaries
- CLV ≠ cumulative revenue billed with no cost or churn model.
- CLV ≠ CAC; acquisition cost is normally compared to CLV, not embedded twice.
- CLV ≠ a guarantee; it is an estimate sensitive to retention and margin assumptions.
- LTV as a string is ambiguous outside customer economics — clarify when used.
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