LTV (Lifetime Value)
The total revenue a business can expect from a single customer over the entire relationship.
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Definition
Lifetime Value (LTV or CLV) estimates the total gross profit generated by a single customer over their entire relationship with your business. It is the counterpart to CAC and together they define whether your unit economics are sustainable.
LTV can be calculated simply (ARPU × margin × lifetime) or with more sophisticated models accounting for expansion revenue, contraction, and discount rates. For early-stage startups with limited data, the simple model is sufficient. As you scale, cohort-based LTV analysis provides more accurate predictions.
LTV varies dramatically by segment. Enterprise customers typically have 3-5x higher LTV than SMB customers due to larger contract values, longer retention, and greater expansion potential. Understanding LTV by segment helps prioritize your go-to-market strategy.
Why It Matters for Founders
LTV determines how much you can profitably spend to acquire a customer, what channels are viable, and ultimately the value of your business. A company with $10,000 LTV can afford CAC up to $3,333 (at 3:1 ratio), opening up expensive enterprise sales channels. A company with $500 LTV needs CAC under $167, requiring low-touch, product-led acquisition.
Increasing LTV is often easier and more impactful than reducing CAC. The three LTV levers are: increase ARPU (through pricing and expansion), improve retention (reduce churn), and improve gross margins (optimize costs). Net revenue retention above 120% dramatically increases LTV because existing customers compound in value over time.
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Formula
LTV = ARPU × Gross Margin % × Average Customer Lifetime (months or years)Real-World Example
A SaaS product charges $99/month with 80% gross margin. Average customer stays 3 years (36 months). LTV = $99 × 0.80 × 36 = $2,851.
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Frequently Asked Questions
What is LTV in SaaS?+
What is a good LTV:CAC ratio?+
How can I increase LTV?+
What is the average SaaS customer lifetime?+
How is LTV different from ARR?+
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