Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV) estimates the total revenue you can expect from a single customer before they churn. In practice, it's the metric that tells you how much you can afford to spend acquiring customers while staying profitable. Get it wrong and you'll either overspend on acquisition or underinvest in growth.

How to calculate LTV

The simplest formula is: LTV = ARPU / Monthly Churn Rate, where ARPU is your Average Revenue Per User per month. If your average customer pays $49/month and your monthly churn rate is 5%, your LTV is $980.

There's a useful shortcut too: Customer Lifetime = 1 / Monthly Churn Rate. At 5% monthly churn, the average customer stays for 20 months. Multiply that by ARPU and you've got your LTV. You can run your own numbers through our LTV calculator to see where you stand.

Why LTV matters

It comes down to the LTV:CAC ratio. A healthy SaaS business typically needs at least 3:1, meaning each customer generates three times what it cost to acquire them. Drop below that and growth becomes unsustainable.

The fastest way to increase LTV is to reduce churn. Cutting monthly churn from 5% to 4% increases LTV by 25%. That's a meaningful jump. Recovering failed payments through dunning directly extends customer lifetimes and boosts LTV without any product changes or additional marketing spend.

What's a good LTV for SaaS?

The absolute LTV number varies wildly depending on your price point. A $29/month product with 3% monthly churn has an LTV of roughly $967. A $199/month product with the same churn clocks in at $6,633. Comparing raw LTV between companies is meaningless without context.

What matters universally is the LTV:CAC ratio. The standard benchmark is 3:1. Below 1:1 means you're losing money on every customer you acquire. Between 1:1 and 3:1, the economics are tight and any spike in churn puts you underwater. Above 3:1 is healthy. Above 5:1 is strong, though it can also mean you're underinvesting in growth and leaving market share to competitors.

For B2B SaaS selling to SMBs, LTV:CAC ratios typically sit between 3:1 and 5:1. Enterprise SaaS with longer sales cycles and higher CAC often targets 5:1 or above to justify the acquisition investment. You can model your own numbers with the LTV calculator.