Glossary · SaaS metrics
What is customer lifetime value (LTV)?
Customer lifetime value (LTV or CLV) is the total revenue — or, more usefully, gross profit — a business can expect from a single customer over the whole time they remain a customer.
Also called: LTV, CLV, CLTV, Lifetime value
Updated
How is LTV calculated?
Simple SaaS LTV = ARPU × gross margin ÷ monthly churn rate Average customer lifetime (months) ≈ 1 ÷ monthly churn rate
The simple formula assumes constant churn and ARPU. It's a good first estimate for a subscription business; more precise models use cohort retention curves and expansion revenue. Using gross margin instead of revenue matters: LTV should reflect what you can spend to acquire customers, and you can only spend profit.
LTV example
ARPU is $40/month, gross margin 80%, monthly churn 3%. LTV = 40 × 0.8 ÷ 0.03 ≈ $1,067. Average lifetime ≈ 33 months. If you reduce churn to 2%, LTV becomes $1,600 — a 50% increase from one point of churn. Try your own numbers in the LTV calculator.
Why LTV matters
LTV is the ceiling on what you can pay to win a customer. Compared with CAC, it tells you whether growth creates value or burns it — see LTV:CAC ratio. Measured by acquisition channel, it shows which sources bring customers who stay.
Common LTV pitfalls
- Very low churn makes LTV explode. 0.5% monthly churn implies a 16-year lifetime; cap the horizon (e.g. 3–5 years) for decisions.
- Young companies don't have the data. A few months of churn history can't predict multi-year lifetimes.
- Revenue instead of margin overstates what you can afford.
- One LTV for everyone. Annual plans, monthly plans and channels behave differently.
LTV and VisitTrack
VisitTrack doesn't model LTV, but it supplies the per-channel input most LTV calculations lack: each payment is attributed to the visitor's first-touch source, refunds are subtracted, and paying visitors' profiles show their full payment history. Summing revenue per customer by acquisition channel over time gives a channel-level LTV you can compare to channel CAC. See revenue attribution.
Frequently asked questions
How do you calculate customer lifetime value for SaaS?
A common estimate is ARPU times gross margin divided by monthly churn. For example, $50 ARPU, 80% margin and 4% churn give an LTV of $1,000.
Should LTV use revenue or profit?
Gross profit is better for decisions, because LTV is usually compared with acquisition cost and you can only spend the margin you earn. Revenue-based LTV is fine for rough comparisons if you say so.
Related terms
- Customer acquisition cost (CAC)Customer acquisition cost (CAC) is the total sales and marketing spend required to acquire one new paying customer over a period — total acquisition costs divided by new customers acquired.
- LTV:CAC ratioThe LTV:CAC ratio compares the lifetime value of a customer with the cost of acquiring them — LTV divided by CAC — to show how much value each dollar of acquisition spend creates.
- Churn rateChurn rate is the percentage of customers (or recurring revenue) that a business loses during a period, out of the customers (or revenue) it had at the start of that period.
- Average revenue per user (ARPU)Average revenue per user (ARPU) is the average amount of revenue a business earns per user or account over a period, usually per month — calculated as revenue divided by the number of users.
- Retention rateRetention rate is the percentage of users or customers from a starting group who are still active — still subscribed, or still coming back — after a given period.
Tools and guides
See which channels actually bring paying customers
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