Which formula defines LTV in this context?

• A. Average monthly recurring revenue ÷ average customer lifetime
• B. Average monthly recurring revenue + average customer lifetime
• C. CAC × average customer lifetime
• D. Average monthly recurring revenue × average customer lifetime

Answer: (D)

The idea being tested is how to measure the total value a customer brings over the period they remain with the business in a recurring-revenue model. Each month a customer contributes a certain amount of revenue (the monthly recurring revenue per customer). To get the value generated over the entire relationship, multiply that monthly revenue by how long the customer stays, i.e., the average customer lifetime in months. This gives the lifetime value in monetary terms.

So the lifetime value equals MRR × average customer lifetime. Dividing MRR by lifetime would give a per-month figure, not total lifetime value; adding them doesn’t reflect a coherent measure; and multiplying CAC by lifetime would mix in acquisition costs, which isn’t the revenue-side LTV. If you wanted net value after acquisition, you’d subtract CAC, but the basic LTV formula is MRR × average lifetime.