What is Customer Lifetime Value (LTV)?

Customer Lifetime Value (LTV) is the total revenue you can expect from a single customer throughout their relationship with your business. It helps determine how much you can afford to spend on customer acquisition while remaining profitable. A higher LTV means each customer is worth more, enabling greater investment in growth.

Formula
(ARPU × GM) / Churn
Target LTV:CAC
3:1 or higher
Key Lever
Reduce Churn

LTV Calculator

Calculate customer lifetime value and LTV:CAC ratio

Your Metrics

$
%

Typical SaaS: 70-85%

%

SaaS average: 2-5% monthly

$

For LTV:CAC ratio calculation

Customer Lifetime Value
$5,333
Avg lifetime: 33 months

LTV:CAC Ratio

3.6:1
Good

Healthy business. Sustainable growth possible.

0:13:16:1+

vs. SaaS Mid-Market Benchmark

Average LTV
$25,000($-19,666.667)
Typical LTV:CAC
4:1(-0.4)
Typical Monthly Churn3%
Monthly Contribution
$160
Annual Value
$1,920

How LTV is Calculated

(ARPU × Gross Margin) ÷ Monthly Churn = LTV
ARPU
$200
per month
Gross Margin
80%
$160 contribution
Monthly Churn
3%
33 mo lifetime
LTV
$5,333
lifetime value

How to Increase LTV

Reduce Churn

High Impact

Improve onboarding, customer success, and product value

Lever: Churn Rate

Increase ARPU

High Impact

Upsell, cross-sell, and optimize pricing tiers

Lever: ARPU

Improve Gross Margin

Medium Impact

Automate support, reduce hosting costs, optimize operations

Lever: Gross Margin

Expand Revenue

High Impact

Land-and-expand strategy, usage-based pricing

Lever: ARPU Growth

Frequently Asked Questions

What is Customer Lifetime Value (LTV)?
Customer Lifetime Value (LTV or CLV) is the total revenue a business can expect from a single customer account over their entire relationship. Formula: ARPU × Gross Margin / Monthly Churn Rate. Higher LTV means more value per customer.
What is a good LTV:CAC ratio?
A healthy LTV:CAC ratio is 3:1 or higher, meaning you earn $3 for every $1 spent on acquisition. Below 1:1 means you lose money on each customer. Above 5:1 suggests you may be under-investing in growth.
How do I calculate LTV for SaaS?
SaaS LTV = (Monthly ARPU × Gross Margin %) / Monthly Churn Rate. For example: ($100 ARPU × 80% margin) / 2% churn = $4,000 LTV. This assumes stable ARPU and churn over the customer lifetime.
What factors affect LTV the most?
Churn rate has the biggest impact on LTV. Reducing monthly churn from 5% to 2.5% doubles LTV. ARPU increases also directly increase LTV. Gross margin affects how much of each dollar contributes to value.
How often should I calculate LTV?
Calculate LTV quarterly using cohort analysis. Track trends over time. Use rolling 12-month data for stable metrics. Segment by customer type, acquisition channel, and plan tier for actionable insights.
Optifai Research Team

Optifai Research Team

Verified

SaaS Metrics & Unit Economics | 500+ B2B companies analyzed | Published benchmarks

Last updated: November 26, 2025
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Related Terms

LTV (Customer Lifetime Value)CAC Payback PeriodNRR (Net Revenue Retention)Logo vs Revenue Churn