What Is Customer Lifetime Value (LTV)?
Customer lifetime value (LTV or CLV) is the total gross-margin revenue you expect from an average customer across their entire relationship with you. It tells you how much you can afford to spend acquiring a customer, and how retention and expansion change the economics of the business.
Key takeaways
- A common SaaS formula: LTV = (ARPA × gross margin %) ÷ customer churn rate.
- Use gross margin, not raw revenue, so LTV reflects real profit.
- LTV is only actionable next to CAC — aim for LTV:CAC of at least 3:1.
How to calculate LTV
Using gross margin matters: a €1,000/month customer with 80% margin and 2% monthly churn is worth far more than the same revenue at 40% margin. LTV measures profit you keep, not revenue you bill.
LTV = (ARPA × Gross Margin %) ÷ Customer Churn Rate
ARPA = average recurring revenue per account; churn is per the same period as ARPA.
Worked example
ARPA of €1,000/month, 80% gross margin, 2% monthly churn gives LTV = (1,000 × 0.80) ÷ 0.02 = €40,000. If CAC is €8,000, your LTV:CAC is 5:1 — comfortably profitable to keep acquiring.
Frequently asked questions
How do you calculate customer lifetime value?
A widely used SaaS formula is LTV = (ARPA × gross margin %) ÷ churn rate. Variations exist, but the key is to use gross margin and a realistic churn figure.
What's the difference between LTV and CLV?
They're the same metric — customer lifetime value. “LTV” and “CLV” are used interchangeably.
What's a good LTV:CAC ratio?
Around 3:1 is the common healthy benchmark. Much lower suggests you're overspending to acquire; much higher can mean you're under-investing in growth.
Related service: Model LTV and CAC in HubSpot