How do you calculate lifetime value for a home services customer?
Use gross profit across all of a customer's jobs, not revenue, and count only what you can observe in your own history — typically two or three years of completed work rather than a projection. Home services lifetime value is driven by repeat rate, membership retention and replacement timing, all of which vary sharply by trade and by the job that brought the customer in. One company-wide figure is almost always too coarse to decide anything.
Revenue-based lifetime value is a vanity number
Marketing spend comes out of gross profit, so lifetime value has to be expressed in gross profit for the comparison to mean anything. A trade with high material pass-through will show impressive revenue per customer and much less room to spend on acquisition.
This requires job costing that is at least directionally right. If labor is not allocated to jobs and materials are not captured consistently, the resulting lifetime value is a guess dressed up as analysis. That data quality question sits inside the field service system, which is why operational integration usually precedes any serious lifetime value work.
Observed beats modeled
Projected lifetime value multiplies assumptions: an assumed repeat rate times an assumed lifespan times an assumed margin. Small errors compound into a number that justifies whatever spend you wanted to justify.
Observed lifetime value takes a cohort of customers acquired in a past period and adds up what they actually produced since. It is smaller, slower to compute, and defensible. Report the observed curve — cumulative gross profit at six, twelve and twenty-four months — rather than a single terminal number.
Segment by the job that brought them in
Entry job type predicts repeat behavior better than almost anything else. A customer acquired through an emergency call behaves differently from one acquired through a maintenance tune-up, who behaves differently again from one acquired through a full system replacement — that last customer may be the most profitable single job and the least likely to return for years.
So build lifetime value by entry segment. It changes acquisition strategy directly: it tells you which cheap job is worth losing money on and which expensive job is a one-time transaction to be judged on its own.
The ratio, and how it gets misused
Lifetime value divided by acquisition cost is a useful sanity check and a terrible operating target. A healthy ratio built on revenue you will not see for three years still leaves you unable to make payroll this quarter. Pair it with payback period, which is the constraint that actually binds in an owner-operated business.
Memberships and service agreements are the one place where longer horizons are genuinely defensible, because renewal behavior is observable and contractual. Even there, use your own renewal history from the operational record rather than a category assumption.
Topics: lifetime value · LTV · retention · unit economics
Have a version of this question about your own business?
The useful answer usually depends on which systems you run and how they're connected. That's a conversation, not a blog post.