All termsMETRICS & KPIS

LTV

Lifetime Value

Also known as: Customer Lifetime Value · CLV

DEFINITION

The total revenue a single customer generates across their entire relationship with your SaaS.

In depth

LTV answers one question: is this customer worth more than they cost to acquire? Compare LTV to CAC and you know whether your growth is profitable.

There are two common formulas. Simple: LTV = ARPU × Gross Margin ÷ Monthly Churn. More accurate (with expansion): LTV = ARPU × Gross Margin × (1 + Expansion Rate − Churn Rate) integrated over time. Use the simple version for benchmarking; the full version for board decks.

Formula & example

LTV = (ARPU × Gross Margin) ÷ Monthly Churn Rate
EXAMPLEARPU $100, Gross Margin 80%, Monthly Churn 2% → LTV = ($100 × 0.8) ÷ 0.02 = $4,000.

Rules of thumb

  • LTV should be 3× CAC minimum.
  • Include gross margin, not revenue, in LTV calculations.
  • Segment LTV by customer type — enterprise and SMB have very different curves.

Put it into practice

tool
LTV/CAC Calculator

Related terms

CAC
The fully-loaded cost of acquiring one paying customer, including sales + marketing + tooling.
LTV/CAC Ratio
The ratio of Customer Lifetime Value to Customer Acquisition Cost — the single most important signal of SaaS profitability.
Churn
The percentage of customers (or revenue) a SaaS loses in a given period. Low churn compounds growth; high churn silently kills it.
Gross Margin
The percentage of revenue left after deducting the direct cost of delivering the service (hosting, support, payment fees).

USE THIS IN A REAL PLAN

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Last reviewed 14 April 2026 by Abhi Verma.