What is Customer Lifetime Value (LTV)?
LTGP (lifetime gross profit) is the gross-profit version of LTV, subtracting COGS before multiplying by customer lifespan, and typically runs 20-40% below LTV. Covers the formula, a worked example, and the LTGP:CAC ratio target by business model (3:1 to 9:1 based on human touchpoints).
Customer lifetime value (LTV) is the total revenue a subscription business expects to collect from one customer before that customer cancels.
LTV helps you see how much each customer is worth over time. It also helps you compare that value against customer acquisition cost (CAC), so you can tell whether your growth model is healthy.
Across our customer base, a 1-percentage-point churn reduction consistently moves LTV by 20–35%. That makes LTV a retention lever and a reporting metric.
Key takeaways
- LTV = ARPA divided by monthly churn rate.
- At $200 ARPA and 5% monthly churn, LTV is $4,000.
- If churn drops from 5% to 4%, LTV rises to $5,000, which is a 25% gain.
- LTV is a churn-rate output, so it isn’t a fixed number.
- SaaS businesses should generally have LTV:CAC above 3x, with some of the best businesses reaching 7–8x.
- Use LTGP or gross-margin-adjusted LTV for CAC and profitability decisions.
- CLV, CLTV, and LCV are often used as synonyms for LTV.
What is the LTV formula for subscription businesses?
The simple revenue LTV formula divides ARPA by monthly customer churn rate:
ARPA ÷ monthly churn rate
This formula works best as a quick estimate when:
- ARPA is stable
- Customers have similar account values; and
- Expansion revenue isn’t a major part of your revenue model
For example, if a business has $200 monthly ARPA and 5% monthly churn, LTV is $4,000.
You can also calculate LTV by multiplying average revenue per customer by average customer lifespan in months. For subscription businesses, the churn-based formula is often useful because it estimates average customer lifetime from churn.
Treat the formula as a simplified model unless ARPA, churn, and expansion behavior are stable.
Match the time period of your inputs.
Use monthly ARPA with monthly churn, or use annual ARPA or ARR with annual churn. Annual billing alone doesn’t require annual inputs. The formula structure is the same, but the revenue and churn inputs need to use the same time period.
For the full calculation, including cohort-level LTV and a working LTV calculator, see our full LTV calculation guide.
LTV changes when churn changes
LTV is a churn-rate output. That means every percentage point of monthly churn directly changes LTV.
At $200 ARPA, here’s how much churn matters:
The change is multiplicative.
A 1-percentage-point churn reduction from 5% to 4% raises LTV by 25% because ARPA is divided by 0.04 instead of 0.05.
The same reduction from 4% to 3% raises LTV by 33% because ARPA is divided by 0.03 instead of 0.04.
The lower churn gets, the more each added improvement matters. That’s why retention investment compounds. Each percentage point off your churn rate raises LTV by a multiplier, and that multiplier grows as churn falls.
How LTV differs from LTGP
LTV measures revenue. LTGP measures gross profit.
If a SaaS business has 65–85% gross margin, LTGP will be 15–35% lower than revenue LTV. The exact gap depends on the company’s cost of goods sold (COGS) and gross margin.
Use revenue LTV for top-line benchmarking when the basis is clear. Use gross-margin-adjusted LTV or LTGP for investor-quality unit economics and CAC decisions.
This matters because revenue LTV can make acquisition look healthier than it is. LTGP gives you a clearer view of how much gross profit a customer creates after COGS.
What is a good LTV?
There’s no universal dollar amount that makes LTV “good.” A good LTV depends on your:
- CAC
- Billing cycle
- Customer segment
- ARPA
The most common SaaS benchmark is the LTV:CAC ratio. Many SaaS teams use 3x as a rule of thumb. David Skok’s SaaS Metrics 2.0 also sets the guideline at LTV:CAC above 3x.
Some of the best SaaS businesses reach 7–8x.
Interpret LTV:CAC alongside gross margin, CAC payback, churn, business stage, and customer segment. A strong LTV:CAC ratio means less if the business has weak margins, slow payback, or uneven retention across segments.
For a practical worked example of subscription LTV, The SaaS CFO’s guide uses cohort ACV/ARPA, subscription gross margin, and dollar churn.
Your own trend over time is often the more useful benchmark. If LTV rises as churn falls, retention is likely improving. To prove a retention investment worked, compare cohorts, segments, or pre/post churn behavior.
If LTV stays flat despite low churn, ARPA may not be expanding enough.
LTV, CLV, CLTV, LCV: what's the difference?
LTV, CLV, CLTV, and LCV are often used interchangeably. All 4 terms usually refer to customer lifetime value.
The calculation basis can still differ. Always confirm whether the metric is revenue-based, gross-margin-adjusted, or net-profit-based.
LTGP is different because it counts gross profit instead of revenue.
When someone cites an “LTV:CAC ratio,” confirm whether they mean LTV or LTGP. The ratio can change a lot, and the right acquisition budget depends on which metric you use.
Related terms
The average revenue a business earns from each account during a set period.
To put this in context of your retention program, see our guide to reducing churn.