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LTV (Customer Lifetime Value)

Definition

The total net revenue a company can expect from a single customer account over the entire duration of the relationship. LTV is often calculated as average revenue per user multiplied by gross margin multiplied by average customer lifespan. PMs use LTV to justify acquisition spending, inform pricing decisions, and prioritize retention over raw growth when appropriate.

Why It Matters for Product Managers

Understanding ltv is critical for product managers because it directly influences how teams prioritize work, measure progress, and deliver value to users. PMs use LTV to justify acquisition spending, inform pricing decisions, and prioritize retention over raw growth when appropriate. Without a clear grasp of this concept, PMs risk making decisions based on assumptions rather than evidence, which can lead to wasted engineering effort and missed market opportunities.

How It Works in Practice

Product teams measure and act on this metric by first establishing a baseline, then setting targets tied to product or business objectives. The typical workflow involves:

  • Define — Agree on the exact calculation and data source so every team member reads the same number the same way.
  • Instrument — Ensure the product tracks the events and attributes needed to compute the metric accurately.
  • Dashboard — Surface the metric in a shared dashboard that the team reviews at a regular cadence (daily, weekly, or per sprint).
  • Act — When the metric moves outside its expected range, investigate root causes and form hypotheses before jumping to solutions.

    • By embedding ltv into regular team rituals, PMs keep the conversation grounded in evidence and catch problems before they compound.

    Common Pitfalls

  • Treating the metric as a vanity number rather than connecting it to actionable product decisions.
  • Measuring in isolation without pairing it with complementary leading or lagging indicators.
  • Optimizing the metric at the expense of overall user experience or long-term business health.

    • Related Concepts

    To deepen your understanding, explore the related concept: Churn Rate.

    Related Terms

    CAC (Customer Acquisition Cost)Churn RateARR / MRR (Annual Recurring Revenue / Monthly Recurring Revenue)

    Frequently Asked Questions

    What is ltv in product management?+
    The total net revenue a company can expect from a single customer account over the entire duration of the relationship. Product managers use this concept to make more informed decisions and deliver better outcomes for users and the business.
    How do you measure ltv?+
    To measure ltv, define the exact calculation and data source, instrument your product to capture the necessary events, and surface the metric in a shared dashboard. Review it at a regular cadence and investigate when it moves outside expected ranges.
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