Customer Lifetime Value estimates the total profit — not revenue — a typical customer is worth over their whole relationship with a business, from first purchase to the day they leave. For subscription businesses, it's usually calculated from monthly revenue per customer, gross margin, and the monthly churn rate, since 1 ÷ churn rate gives the average customer lifespan in months.
A common mistake is calculating LTV from revenue instead of gross profit, which overstates the number by ignoring the cost of actually serving the customer — hosting, support, payment processing, cost of goods. A correct LTV is always a profit figure, since it's meant to be compared against CAC, which is also a cost.
Because churn rate sits in the denominator, LTV is extremely sensitive to small changes in retention — cutting monthly churn in half roughly doubles LTV, which is why reducing churn is usually a higher-leverage lever than increasing acquisition spend.