What is LTV (Customer Lifetime Value)?
Definition
LTV (Customer Lifetime Value) is the total revenue a customer will generate for your business during their entire relationship with you. It represents the long-term value of acquiring and retaining a customer.
How to Calculate LTV
Simple LTV Formula
LTV = ARPA × Customer Lifetime
Example:
ARPA: $100/month
Average Lifetime: 24 months
LTV = $100 × 24 = $2,400
Gross Margin-Adjusted LTV (Recommended)
LTV = (ARPA × Customer Lifetime) × Gross Margin %
Example:
ARPA: $100/month
Lifetime: 24 months
Gross Margin: 80%
LTV = ($100 × 24) × 0.80 = $1,920
Why LTV Matters
Determines Marketing Budget
If LTV is $10,000, you can afford to spend up to ~$3,333 on customer acquisition (at 3:1 ratio).
Guides Product Development
Understanding LTV by segment helps prioritize features for high-value customers.
Enables Valuation
Investors value SaaS companies based on multiples of revenue and LTV metrics.
LTV Benchmarks
| Segment | Typical LTV |
|---|---|
| B2C SaaS | $100 - $500 |
| SMB SaaS | $5,000 - $15,000 |
| Enterprise SaaS | $50,000 - $250,000+ |