Customer lifetime value (LTV) is the total revenue a customer generates from their first purchase to their last, before they churn.
It is the single most important number in SaaS unit economics because everything else scales from it: your acquisition budget, product investment, hiring plans, and pricing decisions.
The basic formula
LTV = Average Revenue Per Customer per Month × Average Customer Lifetime in Months
Example: A customer paying $200/month with a monthly churn rate of 5% has an average lifetime of 20 months (1 / 0.05). LTV = $200 × 20 = $4,000.
The formula gets more sophisticated when you account for expansion revenue, gross margin, and cohort behavior, but this is the starting point.
Why LTV matters more than revenue
Two SaaS companies with $1M ARR can have wildly different economics:
- Company A: $200 ARPU × 5,000 customers × 5% monthly churn = $4K LTV. Can spend up to $1,300 to acquire a customer profitably.
- Company B: $200 ARPU × 5,000 customers × 2% monthly churn = $10K LTV. Can spend up to $3,300 to acquire a customer profitably.
Same revenue. Same customer count. Same average price. But Company B has 2.5x the acquisition budget per customer. It can outbid Company A in every marketing channel and still be more profitable.
This is why retention work has such compounding returns. Every 1% reduction in monthly churn increases LTV meaningfully, which increases every downstream budget.
What affects LTV
Three factors control LTV:
- Average revenue per customer. Pricing, expansion revenue, and plan mix. See should you offer annual plans.
- Churn rate. The denominator. See how to reduce customer churn.
- Time. LTV assumes churn stays constant. In practice, retention curves flatten over time, so long-tenure customers are worth more than the simple formula suggests.
What "good" LTV looks like
LTV varies dramatically by segment:
- Enterprise B2B SaaS: $100K+ LTV typical
- Mid-market B2B SaaS: $5K-$50K LTV
- SMB SaaS: $500-$5K LTV
- B2C SaaS: $50-$500 LTV
- Mobile subscription apps: $30-$300 LTV
What matters more than the absolute number is the LTV to CAC ratio. A healthy SaaS targets 3:1 or higher.
Related concepts
- How to calculate customer lifetime value - the practical formulas
- What is CAC payback period? - how fast you recover your acquisition cost
- What is LTV to CAC ratio? - the definitive unit economics health check
- What is negative churn? - when expansion revenue outpaces losses
To score your retention setup and understand what LTV improvement is available to you, take the 60-second Churn Health Check.