LTV (Lifetime Value)
LTV (Lifetime Value), sometimes called CLV (Customer Lifetime Value), is the total revenue or gross profit a business expects to generate from a customer from acquisition through churn; A simplified LTV formula is Average Revenue Per Account (ARPA) divided by monthly churn rate; LTV is sensitive to churn rate because small changes in churn have outsized effects on lifetime
LTV (Lifetime Value), sometimes called CLV (Customer Lifetime Value), is the total revenue or gross profit a business expects to generate from a customer from acquisition through churn. It is the primary counter-metric to CAC in evaluating acquisition economics.
How it works
A simplified LTV formula is Average Revenue Per Account (ARPA) divided by monthly churn rate. For example, a customer paying $100/month with 2% monthly churn has an expected lifetime of 50 months and an LTV of $5,000. Gross margin-adjusted LTV uses contribution margin rather than revenue for a more accurate picture.
Key facts
- LTV formula: ARPA divided by churn rate (for simple, constant-churn models)
- Gross margin adjustment: LTV should reflect gross profit contribution, not top-line revenue
- LTV:CAC of 3:1: The traditional benchmark for SaaS viability, though growth stage and margins vary
For builders
LTV is sensitive to churn rate because small changes in churn have outsized effects on lifetime. A 2% monthly churn yields 50-month lifetime; 5% monthly churn yields only 20 months, cutting LTV by 60% and fundamentally changing sustainable CAC.
Sources
- Bessemer Venture Partners. State of the Cloud annual report. bvp.com
- SaaStr. SaaS benchmarks and metrics archive. saastr.com
- Bain & Company. The Net Promoter System. bain.com
- KPMG. Private SaaS Company Survey. kpmg.com
- ChartMogul. SaaS metrics benchmarks and definitions. chartmogul.com
