Glossary · Metrics

Lifetime Value (LTV)

LTV is the total gross profit a customer will generate across their entire relationship with your company.

Quick definition

LTV is the total gross profit a customer will generate across their entire relationship with your company.

Definition

LTV forecasts how much a single customer is worth over their full lifetime. It's the foundation of the LTV/CAC ratio — the single most important unit-economics signal for a subscription business. LTV should use gross profit, not revenue. Cost of goods sold, hosting, support, and payment fees all reduce the value of each customer.

Formula

LTV = (ARPU × Gross Margin) ÷ Churn Rate

Worked example

ARPU $100/mo × 80% gross margin ÷ 3% monthly churn = LTV of $2,667 per customer.

Common mistakes

  • — Using revenue LTV instead of gross-margin LTV — this can inflate LTV by 30–70%.
  • — Assuming churn stays flat — real cohorts almost always churn faster in month 1–3.
  • — Comparing to fully-loaded CAC without adjusting the horizon.

Frequently asked questions

3× is the widely-cited healthy benchmark for SaaS. Below 1× the business loses money on every customer.

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