LTV (Customer Lifetime Value)
LTV (Customer Lifetime Value, also CLV) is the total revenue — or better, gross profit — a business expects from an average customer over their entire life as a customer. The standard SaaS shortcut is ARPU divided by churn rate.
Formula
Worked example
ARPU of $120/month at 3% monthly churn gives an average lifetime of 33 months and LTV of $4,000; at 80% gross margin, a margin-adjusted LTV of $3,200.
The formula assumes constant churn, which flatters young companies whose early cohorts have not aged yet. For anything beyond a first approximation, check the shortcut against actual cohort revenue curves.
Two rules keep LTV honest: use gross profit rather than revenue when comparing against CAC (CAC is cash; compare like with like), and never quote an LTV computed from near-zero churn — at 0% churn the formula divides by zero and outputs fantasy.
Compute it: LTV calculator