A workable formula for a subscription business is average monthly revenue per customer, multiplied by gross margin, divided by monthly churn rate. For a business selling one-off products, it is average order profit multiplied by expected repeat purchases. Use gross profit rather than revenue — revenue you never keep is not value — and be conservative with the lifespan estimate, because young businesses have almost no evidence for how long customers actually stay.
LTV exists to answer one question: how much can I afford to spend winning a customer. The common benchmark is an LTV to CAC ratio of at least 3:1, though the ratio matters less than the direction it moves in. A rising LTV usually means you have improved retention or pricing, which are the two most durable levers a small business has. It is also the number that justifies patience — if a customer is worth $2,400, an $800 acquisition cost is an investment rather than an expense, provided you have the cash to wait.
A concrete example: your service is $80 a month at a 70% gross margin, so $56 of monthly profit per customer. Monthly churn is 4%, implying an average lifespan of 25 months. LTV is $56 × 25 = $1,400. Against a $300 CAC, the ratio is roughly 4.7:1 — healthy. Halve churn to 2% and LTV doubles to $2,800 without winning a single new customer.