LTV (Lifetime Value) is the total revenue or gross profit a business expects to earn from a single customer over the entire duration of their relationship.

What is a good LTV:CAC ratio?

A 3:1 LTV:CAC ratio is the standard benchmark for healthy SaaS economics. Below 1:1 means you are losing money on every customer acquired. Above 5:1 may indicate underinvestment in growth.

How do you calculate LTV from Stripe?

Calculate ARPU from your Stripe subscription data (total MRR divided by active customers) and divide by your monthly churn rate. For example, $100 ARPU with 3% monthly churn gives an LTV of $3,333.

What is the difference between LTV and CLV?

LTV and CLV (Customer Lifetime Value) are the same metric. CLV is the full name; LTV is the more common abbreviation used in SaaS.

Should LTV use revenue or gross margin?

Gross margin is more accurate because it accounts for the cost of delivering your service. Revenue-based LTV overstates the actual value a customer contributes to your business.

What Is LTV (Customer Lifetime Value)? Formulas & LTV:CAC Ratio

Definition

Customer Lifetime Value (LTV) is the total revenue a business expects to earn from a single customer over the entire duration of their relationship. LTV is one of the most critical SaaS metrics because it determines how much you can afford to spend on customer acquisition (CAC) while remaining profitable.

Three LTV Formulas

There are three common ways to calculate LTV, each with increasing accuracy:

1. Simple LTV

The simplest formula divides average revenue per user by the churn rate:

LTV = ARPU ÷ Churn Rate

Example: If your ARPU is $100/month and your monthly churn rate is 3%, then LTV = $100 ÷ 0.03 = $3,333.

2. Gross-Margin-Adjusted LTV

This formula accounts for the cost of delivering your service:

LTV = (ARPU × Gross Margin %) ÷ Churn Rate

Example: $100 ARPU, 80% gross margin, 3% churn gives LTV = ($100 × 0.80) ÷ 0.03 = $2,667. This is the more accurate method because it reflects actual profit contribution.

3. Cohort-Based LTV

Cohort-based LTV sums the actual revenue generated by a group of customers who signed up in the same period:

LTV = Sum of actual revenue per cohort ÷ Number of customers in cohort

This method is the most accurate because it uses real data rather than averages. It requires at least 12-24 months of cohort data to produce reliable estimates.

LTV:CAC Ratio

The LTV:CAC ratio compares customer lifetime value to the cost of acquiring that customer. It is the primary indicator of unit economics health in SaaS.

LTV:CAC Ratio	Interpretation
< 1:1	Losing money on every customer. Unsustainable without changes.
1:1 to 3:1	Marginal economics. May be acceptable in early-stage with improving trends.
3:1	The standard SaaS benchmark. Revenue from a customer is 3x the cost to acquire them.
3:1 to 5:1	Strong unit economics. Healthy and efficient growth.
> 5:1	May indicate underinvestment in growth. You could likely spend more on acquisition profitably.

LTV by Segment

Aggregate LTV can be misleading. Calculate LTV separately for each pricing tier, customer segment, or acquisition channel. Enterprise customers often have 5-10x higher LTV than self-serve customers due to higher ARPU and lower churn rates.

By pricing tier: Starter, Pro, and Enterprise tiers will have different ARPU and churn rates, producing different LTVs.
By acquisition channel: Customers from organic search may have higher LTV than those from paid ads due to stronger intent.
By cohort: Newer cohorts may have different LTVs than older cohorts if your product or pricing has changed.

How to Increase LTV

LTV is driven by three levers: ARPU, churn, and contract length. Improving any one of these increases lifetime value.

Reduce churn: Improving retention from 95% to 97% monthly nearly doubles average customer lifetime (from 20 months to 33 months).
Increase ARPU: Upsell to higher tiers, add seat-based pricing, or introduce usage-based components. See Expansion MRR.
Extend contract length: Annual contracts reduce churn and increase predictability. Customers on annual plans churn at roughly half the rate of monthly customers.

Common LTV Mistakes

Using revenue instead of gross margin: Revenue-based LTV overstates value. Always use gross-margin-adjusted LTV for financial planning.
Ignoring churn trends: If churn is increasing over time, a static churn rate in your LTV formula will overestimate lifetime value.
Averaging across segments: A blended LTV hides the reality that some segments are highly profitable while others may be unprofitable.
Assuming infinite lifetime: The simple formula implies customers stay forever. Cap your LTV calculation at a realistic time horizon (e.g., 5 years).

What Is LTV (Customer Lifetime Value)?