LTV

LTV (Lifetime Value, sometimes called CLV or CLTV for Customer Lifetime Value) is the total revenue you expect to earn from a single customer over the entire duration of their relationship with your business. It is the most important unit economics metric for any subscription or recurring-revenue business because it determines how much you can afford to spend acquiring customers while remaining profitable.

Why it matters: LTV sets the ceiling for your Customer Acquisition Cost (CAC). The classic benchmark is that LTV should be at least 3x CAC for a healthy business. If your LTV is $900, you can spend up to $300 to acquire a customer and maintain healthy unit economics. If LTV drops or CAC rises, the business model breaks. LTV also informs pricing decisions, retention investment, and customer success prioritization.

How to calculate: the simplest formula for subscription businesses is LTV = ARPU / Churn Rate. If your monthly ARPU is $50 and your monthly churn rate is 5%, then LTV = $50 / 0.05 = $1,000. This assumes constant ARPU and churn, which is a simplification. More sophisticated models factor in expansion revenue (upsells, cross-sells), gross margin (since not all revenue is profit), and cohort-specific churn curves. For precise modeling, tools like ChartMogul, ProfitWell (now Paddle), and Baremetrics calculate LTV from your actual subscription data.

Segment your LTV: just like ARPU, a blended LTV number hides important variation. Enterprise customers with $500/month contracts and 2% churn have an LTV of $25,000. Self-serve customers at $29/month with 8% churn have an LTV of $362. These segments require completely different acquisition strategies, support levels, and retention programs.

Common mistakes: calculating LTV once and treating it as static. LTV changes constantly as you adjust pricing, improve retention, and shift your customer mix. Over-relying on projected LTV (based on assumptions) rather than realized LTV (based on actual historical data). Not factoring in gross margin, which means your "LTV" is actually lifetime revenue, not lifetime value.

Practical example: a SaaS company calculates that their average LTV is $2,400 and their CAC is $1,200, giving them a 2:1 ratio, below the 3:1 target. They implement a customer success program focused on the first 90 days and add an annual plan discount. Six months later, churn drops 30% and annual plan adoption increases, pushing LTV to $3,800 and the ratio to 3.2:1.