Lifetime value (LTV)

Definition

What one customer is worth across the whole time they keep buying.

Why It Matters

It is the other half of the acquisition cost, and neither number means anything on its own: two hundred dollars to win a customer is cheap against a thousand of lifetime gross profit and ruinous against three hundred. Two things make it harder here than in software. Almost nobody in a small business tracks it, so it has to be built out of the books, from the average sale, how often a customer buys, the gross margin on that work, and how long they stay. And it is most fragile in the businesses that look safest: a route or a contract book carries a long customer life right up until the one relationship holding it walks out with the seller. Read it per segment, because a handful of long-lived accounts will hold up an average that hides churn underneath it.

In numbers: A pest control route billing $110 a quarter at a 55% gross margin to a customer who stays four years is worth about $970 in lifetime gross profit, so a $200 cost to win one pays back inside the first year.