Customer Lifetime Value (LTV)

Learn LTV, how to calculate it safely, common pitfalls, and how to increase it.

customer lifetime valueLTV formulaLTV SaaShow to increase LTV

Definition

Customer Lifetime Value (LTV) is the gross profit you expect to earn from a customer over their lifetime.

Answer-first summary

Customer Lifetime Value (LTV): Customer Lifetime Value (LTV) is the gross profit you expect to earn from a customer over their lifetime.

Formula

Simple LTV (gross profit)

LTV ≈ (ARPA × Gross Margin) / Churn Rate

  • ARPA: Average revenue per account (per month)
  • Gross Margin: Gross margin percentage
  • Churn Rate: Revenue or logo churn (be consistent)

ARPA=$500/mo, gross margin=80%, monthly churn=3% → LTV ≈ (500×0.8)/0.03 = $13,333 gross profit equivalent.

How to improve

  • Reduce churn with better onboarding and CS motions.
  • Increase ARPA via packaging, add-ons, and expansion paths.

Common pitfalls

  • Using the simple formula with volatile churn or early-stage cohorts.
  • Mixing logo churn with ARPA without cohort consistency.

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FAQ

Should I use revenue LTV or gross profit LTV?
Prefer gross profit LTV to reflect real unit economics.
Is LTV reliable early-stage?
Use cohort-based retention curves and scenario ranges; avoid false precision.

Topic hub

Explore the full cluster for stronger context, benchmarks, templates, and comparisons.

Unit Economics Hub — CAC, Payback, LTV, and Efficiency

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  • Churn Rate

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  • LTV:CAC Ratio

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  • Monthly Recurring Revenue (MRR)

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  • Gross Margin

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Related calculators

  • LTV Calculator

    Calculate LTV using ARPA, gross margin, and churn. Includes shareable inputs via URL.

  • LTV:CAC Ratio Calculator

    Compute LTV:CAC ratio using LTV and CAC or via ARPA/gross margin/churn + CAC.

  • CAC Payback Calculator

    Calculate CAC payback period using CAC, ARPA, and gross margin. Share results via URL and track improvements over time.

  • Churn Rate Calculator

    Calculate logo churn or revenue churn for a given period. Shareable inputs and tracked usage events.

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