LTV (Lifetime Value)
The total revenue (or gross profit) you expect to earn from a customer across their entire relationship with you.
LTV — customer lifetime value — is the total revenue or gross profit you'll make from one customer across their whole relationship with you. For a subscription business, the simplest version is monthly revenue per customer × average customer lifespan in months.
A SaaS product with $50 average monthly revenue per customer and 24-month average lifespan has a basic LTV of $1,200. Subtract delivery costs (hosting, payment processing, support) and you get gross-margin LTV — the version most investors and operators actually care about.
The two levers on LTV are obvious but underused:
- Price — raising the monthly rate flows straight through
- Retention — every additional month of average lifespan compounds against your other revenue
A 10% price increase is worth roughly the same as adding ~10% to the lifespan. Both are usually easier than acquiring 10% more customers.
LTV is meaningful primarily against CAC. The ratio (LTV/CAC) tells you whether the business model works. LTV alone tells you the ceiling on how much you can profitably spend acquiring.
Watch for vanity LTV calculations that ignore churn or use lifetime revenue instead of gross profit. Healthy LTV math uses gross profit and accounts for the reality that customers don't actually live forever.
See also
- CAC (Customer Acquisition Cost) — The total cost of getting one paying customer. Marketing + sales spend in a period, divided by new customers from that period.
- LTV:CAC ratio — The relationship between what a customer is worth to you over their lifetime and what you paid to acquire them. The most important single number in unit economics.
- Churn — The rate at which customers cancel their subscriptions. Compounds against you — small churn improvements drive huge LTV improvements.
- MRR (Monthly Recurring Revenue) — The total predictable subscription revenue your business earns each month. The headline metric for any SaaS business.
- Gross margin — Revenue minus the direct cost of delivering that revenue, divided by revenue. The percentage of each dollar of revenue you keep before operating expenses.
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