LTV (Lifetime Value)
The total revenue a business expects to earn from a single customer over the entire duration of the relationship.
What is LTV?
LTV (Lifetime Value), also called CLV or CLTV, is the total revenue a company expects from a single customer account from acquisition to churn. It's the primary input for understanding how much you can afford to spend acquiring customers (CAC).
LTV formula (simple)
**LTV = ARPU × Average Customer Lifetime**
Average Customer Lifetime = 1 ÷ Monthly Churn Rate
Example: ARPU = ₹999/mo, monthly churn = 3%
→ Average lifetime = 1 ÷ 0.03 = 33 months
→ LTV = ₹999 × 33 = ₹32,967
LTV:CAC ratio
The ratio of LTV to Customer Acquisition Cost tells you whether your business model is sustainable.
| Ratio | Interpretation |
|---|---|
| < 1:1 | Losing money on every customer |
| 1:1 – 3:1 | Marginal — not enough to fund growth |
| 3:1 | Healthy — industry benchmark for SaaS |
| > 5:1 | Either pricing too low or underinvesting in growth |
How to increase LTV
- Reduce churn — biggest lever; doubles LTV when halved
- Increase ARPU — upsells, expansions, seat growth
- Extend payback period — annual plans reduce early churn
Free templates for LTV
Frequently asked questions
Should I use gross margin LTV or revenue LTV?
Gross margin LTV (revenue minus COGS) is more accurate for comparing against CAC, since CAC is a cash cost. Revenue LTV overstates the economics. For SaaS with 70–80% gross margins, the difference is significant.
How reliable are LTV calculations for early-stage companies?
Unreliable — they require stable churn rates you don't have yet. Early-stage LTV is a directional estimate. Use cohort retention data instead: 'our 6-month cohort retains 55%' is more honest than projecting a 36-month LTV from 3 months of data.
Apply LTV to your real product data
PMRead ingests customer feedback, interviews, and Slack threads — and generates PRDs grounded in real evidence.
Related terms
Churn Rate
The percentage of customers or revenue lost in a given period — the primary indicator of whether a product retains the value it delivers.
CAC (Customer Acquisition Cost)
The total cost to acquire one new customer — including sales, marketing, and any related overhead — divided by the number of new customers acquired in a period.
ARPU (Average Revenue Per User)
Total revenue divided by total active users in a period — a key indicator of monetisation efficiency and pricing power.