Lifetime value

Lifetime value is the total gross profit a single customer produces across the whole time they stay with you. Not revenue — profit, after the cost of actually delivering the thing. A $50 monthly subscription with $10 of delivery cost and an average stay of twenty months has a lifetime value of $800, not $1,000.

Its real job is to tell you what a customer is worth acquiring, which is why it is almost never useful on its own. The number that decides whether a business works is the ratio between lifetime value and what it costs to acquire that customer. A ratio near one means you are buying revenue at cost. Most durable businesses want it comfortably above three, because the gap is what funds everything that is not sales.

The common mistake is treating one blended lifetime value as the truth. Customers acquired from a referral behave nothing like customers acquired from a discount campaign — different retention, different support load, often double the value. A single average hides that, and the campaign that looks marginally profitable in aggregate is usually one good segment subsidising one bad one.

A worked case: an online course with a $300 one-off price and no repeat purchase has a lifetime value of roughly $255 after payment fees and support. Adding a $29 monthly community that a third of buyers join for an average of eight months adds about $77 per buyer — a thirty per cent increase in what every acquisition is worth, without changing the top of the funnel at all.