Customer lifetime value (LTV)
Also: LTV, CLV, customer lifetime value
Customer lifetime value estimates the total revenue, or ideally gross profit, a customer will generate over the whole relationship. In subscription businesses it is commonly modelled from average revenue per account and the churn rate. It is used to judge how much it is worth spending to acquire a customer.
Formula
LTV ≈ ARPA × gross margin ÷ customer churn rate
How to read it
Use gross margin, not revenue, if you want LTV to compare honestly against acquisition cost. The churn input matters enormously: a small error in a low churn rate swings the estimate widely, so treat it as a range rather than a precise figure.
Further reading
- Customer lifetime value for SaaS: why a static number isn't enough
- SaaS unit economics: the framework that tells you if the model works