What Is Customer Lifetime Value (LTV)?

Customer Lifetime Value (LTV), also called CLV (Customer Lifetime Value), estimates the total gross profit a customer generates over their entire relationship with your business. For subscription companies, LTV is the single most important measure of how valuable each customer is and directly determines how much you can afford to spend on acquisition.

How to use the LTV Calculator

1. Open the LTV Calculator and set your currency.
2. Enter average monthly revenue per user (ARPU).
3. Enter gross margin as a percentage (typical SaaS: 70–85%).
4. Enter monthly logo churn rate. The calculator applies LTV = (ARPU × margin) ÷ churn and shows benchmarks below the result.

The LTV formula

The standard SaaS LTV formula:

LTV = (ARPU × Gross Margin) ÷ Monthly Churn Rate

Where:

• ARPU (Average Revenue Per User), average monthly revenue per customer
• Gross Margin: percentage of revenue retained after cost of goods sold (COGS)
• Monthly Churn Rate: percentage of customers or revenue lost per month

Example

Input	Value
ARPU	$100/month
Gross margin	80%
Monthly churn	3%
Monthly gross contribution	$80
LTV	$80 ÷ 0.03 = $2,667

Use our LTV Calculator to model your numbers.

Why gross margin matters

LTV should reflect profit, not revenue. A customer paying $100/month with 40% COGS contributes only $60/month toward covering acquisition cost and overhead.

SaaS gross margins are typically 70–85% for mature products. Services-heavy or infrastructure-intensive products may be lower.

Using revenue instead of gross margin overstates LTV and leads to overspending on acquisition.

Churn: the LTV lever

Churn appears in the denominator, which means small changes have outsized effects:

Monthly churn	LTV (at $80 contribution)
5%	$1,600
3%	$2,667
2%	$4,000
1%	$8,000

Cutting churn from 5% to 3% increases LTV by 67%, often more impactful than increasing ARPU.

→ Model this with our Churn Impact Calculator

Logo churn vs. revenue churn

Logo churn counts customers lost:

Logo churn = Customers lost ÷ Starting customers

Revenue churn (or MRR churn) measures recurring revenue lost:

Revenue churn = MRR lost ÷ Starting MRR

For LTV calculation, use the churn type that matches your model:

• Logo churn: when customers are roughly equal in value
• Revenue churn: when customer sizes vary significantly (enterprise SaaS)

Net Revenue Retention (NRR) goes further by including expansion:

NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR

NRR above 100% means existing customers grow revenue even without new logos.

LTV calculation methods

1. Simple formula (most common)

LTV = (ARPU × Gross Margin) ÷ Churn

Best for: quick estimates, SMB SaaS with relatively uniform customers.

2. Cohort-based LTV

Track actual revenue from a customer cohort over time and sum gross profit until the cohort reaches zero or stabilizes.

Best for: enterprise with long contracts, high variance in customer value.

3. Discounted cash flow LTV

Sum future gross profit discounted by a rate reflecting time value of money.

Best for: finance teams, investor reporting, long payback periods.

For most growth teams, the simple formula is sufficient for decision-making. Upgrade to cohort-based when ACV exceeds $25K or contract lengths vary widely.

Segmenting LTV

Blended LTV hides critical differences. Segment by:

Segment	Why
Plan tier	Enterprise LTV may be 10× self-serve
Acquisition channel	Organic customers often retain better
Company size	SMB churn is typically higher than enterprise
Cohort month	Product improvements lift newer cohort LTV

A blended LTV of $3,000 might mask $800 SMB LTV and $15,000 enterprise LTV, leading to wrong CAC targets per segment.

LTV benchmarks

LTV is relative to CAC, not absolute. But directional ranges by segment:

Segment	Typical LTV range
Self-serve SaaS	$500–$3,000
SMB sales-assisted	$3,000–$15,000
Mid-market	$15,000–$100,000
Enterprise	$100,000+

The critical benchmark is **LTV:CAC ratio: target 3:1 or higher for sustainable growth.

How to increase LTV

1. Reduce churn: onboarding, customer success, product stickiness
2. Increase ARPU: pricing, packaging, annual plans with discount
3. Drive expansion: upsells, cross-sells, seat-based growth
4. Improve gross margin: infrastructure optimization, reduce support costs per user
5. Target higher-value segments: move upmarket where LTV is naturally higher

Common LTV mistakes

Mistake	Impact
Using revenue instead of gross margin	Overstates LTV 20–40%
Using annual churn in monthly formula	Dramatically wrong LTV
Ignoring expansion revenue	Understates LTV for products with upsell
One blended LTV for all segments	Misallocates acquisition budget
Assuming churn is constant	Early cohorts often churn faster

LTV in context

LTV connects to every other growth metric:

• CAC: what you spend to acquire
• LTV:CAC ratio: unit economics health
• CAC payback: cash recovery speed
• Churn: the primary LTV driver
• LTV vs CLV: same metric, different acronyms by industry

Sources

Directional LTV ranges in this guide reflect commonly discussed SaaS segment norms from public research (for example OpenView and ChartMogul). Compare against your own cohorts.

Key takeaways

• LTV = (ARPU × Gross Margin) ÷ Churn, use gross profit, not revenue
• Small churn improvements compound into large LTV gains
• Segment LTV by plan, channel, and customer type
• Pair LTV with CAC and payback for complete unit economics