What is Customer LTV?

Customer LTV (Lifetime Value) is the total revenue you can expect from a single customer over the entire duration of their relationship with your business. It's essential for understanding how much you can afford to spend on customer acquisition and which customer segments are most valuable.

How to Calculate LTV

Simple Formula

LTV = ARPU × Average Customer Lifespan (months)

Churn-Based Formula

LTV = ARPU ÷ Monthly Churn Rate

ARPU = Average Revenue Per User (monthly). The churn-based formula assumes a constant churn rate, which is a simplification but useful for quick estimates.

Calculation Example

Your SaaS has:

ARPU: $65/month
Monthly customer churn rate: 4%

LTV = $65 ÷ 0.04 = $1,625

On average, each customer will generate $1,625 in revenue over their lifetime. This means you could spend up to ~$540 on acquisition (LTV/3 rule) and still be profitable.

The LTV:CAC Ratio

LTV is most useful when compared to your Customer Acquisition Cost (CAC). The LTV:CAC ratio tells you how efficiently your growth spending converts to long-term revenue.

<1:1

Losing money on every customer

3:1

Healthy target for most SaaS businesses

>5:1

Very efficient, but may be under-investing in growth

LTV Segmentation

Average LTV across all customers hides important differences. Segmenting customers by LTV helps you:

Identify your best customers. High-LTV customers often share common traits—acquisition channel, company size, use case—that you can target.
Allocate support resources. High-LTV customers may warrant dedicated account management.
Prioritize retention efforts. Focus churn reduction on your highest-value segments.
Set acquisition budgets. Different segments justify different CAC thresholds.

Common segmentation tiers: whale, high-value, medium, and low. The boundaries depend on your pricing and business model.

How to Increase LTV

Since LTV = ARPU × Lifespan, you can improve it by increasing either factor:

Reduce churn to extend average customer lifespan (see churn rate)
Increase ARPU through upsells, add-ons, or usage-based pricing
Offer annual plans for higher commitment and lower churn
Expand within accounts by enabling seat-based or team pricing

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