Customers come and go, but they have a value for you. And their lifetime value is a measure to plan for.
A lifetime value of a customer is what startups are judged by. It's a crucial measure to select business decisions that increase the lifetime value and that do not sink the company value.
First of all, lifetime value show how much of an operating income does average customer generate for you. Put simply, it shows revenue from an average customer multiplied by profit margin.
For assessing correctly the LTV, you need to determine average purchase value (APR), purchase frequency (APF), and average customer lifespan (ACL). For example, if you run a SaaS, your customer pays €10 every month for 2 years, the average revenue from a customer is 10x12x2 = €240.
If the average revenue is multiplied by profit margin (eg. 20%), the lifetime span of a customer is €48.
It says to you that at the beginning of the customer-business relationship, there is up to €48 for customer care. Or you can say that there is up to LTV of marketing spending available per new customer.
That is called acquisition cost and its reasonable size can be determined either from business aka LTV (how much will I get from customer has to exceed how much I pay for the acquisition) or from industry standards and averages.
Lifetime value can also be increased. You can either reduce the churn rate (how many customers leave every month/year) and increase average customer lifespan or you can increase purchase value or purchase frequency by providing more value to your customer and letting them spend more.
Either way you choose to work on increasing your LTV, it helps with increasing revenues and profits at the same time.