LTV (Customer Lifetime Value) is the total revenue a business expects from a single customer throughout their entire relationship, from first purchase to churn.
How to Calculate LTV
LTV = Average Revenue Per Customer × Average Customer Lifespan
For subscription businesses: LTV = Monthly Revenue Per Customer ÷ Monthly Churn Rate. For e-commerce: LTV = Average Order Value × Purchase Frequency × Average Customer Lifespan.
Why LTV Matters
LTV determines how much you can afford to spend acquiring customers (CAC). It guides marketing budgets, product development priorities, and retention investments. Increasing LTV by just 10% can dramatically improve profitability without acquiring a single new customer.
Real-World Example
A SaaS product charges $50/month with 3% monthly churn (average lifespan: 33 months). LTV = $50 ÷ 0.03 = $1,667. If they reduce churn to 2% (50-month lifespan), LTV jumps to $2,500 — a 50% increase from a 1-point churn improvement.
Frequently Asked Questions
How do I increase LTV?
Reduce churn (better onboarding, customer success), increase average revenue (upsells, cross-sells, price increases), expand product value, improve customer satisfaction, and build switching costs. Retention improvements are usually the highest-leverage strategy.
What is a good LTV:CAC ratio?
The benchmark is 3:1 — each customer generates 3× what it costs to acquire them. Below 1:1 means you are losing money on each customer. Most venture-backed SaaS companies target 3:1 to 5:1.
Is LTV the same as revenue per customer?
No. Revenue per customer is what they pay in a given period. LTV projects total revenue over the entire expected relationship. A customer paying $100/month with a 2-year average lifespan has $100 monthly revenue but $2,400 LTV.