Metrics & Performance
LTV
Lifetime Value — the total revenue a business expects to earn from a single customer over the entire duration of their relationship.
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.
In Practice
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 It 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.
VC Beast Take
LTV calculations are frequently gamed. The most common manipulation: using revenue LTV instead of margin LTV (makes the number look 2–3x bigger), and using overly optimistic churn rates based on short measurement windows. Be skeptical of LTV numbers without understanding the underlying churn rate and gross margin assumptions. A '3x LTV/CAC' ratio built on 2% monthly churn and 40% gross margins is very different from one built on 0.5% monthly churn and 80% margins.