Formula
How to Calculate LTV
Lifetime Value — the total revenue a business expects to earn from a single customer over the entire duration of their relationship.
Customer Lifetime Value
LTV = ARPA x Gross Margin % x (1 / Churn Rate)
Where
- ARPA
- = Average Revenue Per Account (monthly)
- Gross Margin %
- = Gross margin as a decimal
- Churn Rate
- = Monthly customer churn rate
What Is LTV?
LTV (Lifetime Value), also called Customer Lifetime Value (CLV or CLTV), is the predicted total revenue a company will generate from a customer from acquisition through churn. It is one of the two most important metrics in any subscription or recurring revenue business — the other being CAC. Simple LTV formula: LTV = Average Revenue Per Account (ARPA) / Churn Rate For example, if a SaaS company charges $500/month and has 2% monthly churn, LTV = $500 / 0.02 = $25,000. A more accurate LTV factors in gross margin: Gross Margin LTV = (ARPA × Gross Margin) / Churn Rate. This represents the actual profit lifetime value rather than just revenue. The LTV/CAC ratio is the headline efficiency metric: LTV should be at least 3x CAC for a sustainable SaaS business. Best-in-class companies achieve 5–10x.
Worked Example
A company with $200/month ARPA and 1% monthly churn has an LTV of $20,000. If it costs $3,000 to acquire a customer (CAC), the LTV/CAC ratio is 6.7x — very strong. A company with 5% monthly churn would have an LTV of only $4,000, making that same $3,000 CAC nearly unworkable.
Why LTV Matters
LTV is the ceiling on how much you can rationally spend to acquire a customer. It also reveals the health of your retention — high churn destroys LTV and breaks unit economics. Improving LTV through better retention, upsells, or cross-sells is often the highest-ROI growth lever for a mature SaaS business.
Related Terms
Frequently Asked Questions
How do you calculate LTV?
LTV is calculated using the formula: LTV = ARPA x Gross Margin % x (1 / Churn Rate). Lifetime Value — the total revenue a business expects to earn from a single customer over the entire duration of their relationship.
What is a good LTV?
What constitutes a "good" LTV depends on context — the fund's stage, vintage year, and strategy. Check our benchmarks and calculators for specific ranges.