If you’ve ever wondered, “How much can I afford to spend to win a customer?”—the answer lives inside a simple metric: Customer Lifetime Value (LTV). LTV tells you the total profit you can expect from a typical customer over the entire time they work with you. When you know it, you make smarter decisions about pricing, marketing, and retention—and you sleep a little better, too.
At Bottom Line Bookkeeping Solutions, we help service-based and construction businesses use LTV to set profitable targets, choose the right clients, and build steady cash flow. Below is a plain-English guide, plus a free LTV Calculator you can download and share with your team.
What is Customer Lifetime Value (LTV)?
LTV is the profit a customer generates for your business before they churn or stop buying. It’s not revenue—it’s revenue minus your direct costs (materials, subs/crews, software fees tied to delivery, etc.).
- Pricing clarity: Confidently set rates and retainer levels.
- Marketing ROI: Know how much you can spend to acquire a client (CAC) and still hit profit goals.
- Retention focus: See how reducing churn or repeat business boosts profit without working more.
The Quick-Start LTV Formulas (pick your model)
1) Subscription / Retainer (e.g., monthly bookkeeping, managed services)
LTV = ARPU × Gross Margin % × Average Lifetime (months)
Average Lifetime = 1 ÷ monthly churn rate
2) Projects / Repeat Services (contractors, specialty trades, agencies)
LTV = Avg Revenue per Job × Jobs/Yr × Years Retained × Gross Margin %
3) Products / Retail
LTV = Average Order Value × Purchase Frequency/Yr × Years Retained × Gross Margin %
Rule of thumb: Aim for LTV:CAC ≥ 3:1 and a payback period < 12 months (how long it takes gross margin to cover CAC).
What to Enter (and What to Ignore)
To keep this simple, focus on inputs you already track:
- Average revenue (per month, per job, or per order)
- Gross margin % = (Revenue − Direct Costs) ÷ Revenue
- Retention : monthly churn for subscriptions, or years retained for projects/products
- CAC (optional) : average spend on marketing + sales to win one customer
Download the Free LTV Calculator
We built a simple, client-friendly spreadsheet with three tabs—Subscription, Projects, and Products—plus a Summary & How-To page.
• Enter the blue input cells (ARPU, margin, churn/years, CAC)
• LTV, LTV:CAC, and payback period calculate automatically
• Duplicate a tab to run scenarios (e.g., price increase, churn improvement, new offer)
Download the LTV Calculator
How Contractors & Service Businesses Use LTV (Real-World Wins)
- Bid smarter: If your LTV is $7,200 and CAC is $900, you have room to invest in better lead sources without squeezing margins.
- Stop discounting by default: A 10% discount might look small per job, but across a 3-year LTV it can erase thousands in profit.
- Prioritize retention: Reducing churn from 4% to 3% increases lifetime from 25 to ~33 months—that alone can add 30%+ to LTV.
- Design offers that stick: Maintenance plans, seasonal tune-ups, and scheduled check-ins keep you top-of-mind and extend the relationship.
Common LTV Mistakes (and easy fixes)
- Confusing revenue with profit: Always apply gross margin % in your calculation.
- Overestimating lifetime: Use actual churn/retention, not hopes.
- Ignoring upgrades & add-ons: If you frequently upsell, include that in your average revenue figures.
- Forgetting CAC: LTV is powerful—LTV vs. what it costs to get a client is what drives better decisions.
Want help using LTV to grow profit?
If you want more profit with less guesswork, we’ll walk you through your numbers, plug them into the calculator, and turn findings into clear pricing, retention, and marketing moves—tailored to your business.
