LTV (Lifetime Value)

Lifetime Value (LTV) is the total amount of revenue you can expect from a single customer over the course of their relationship with your business. It's one half of the most important unit economics equation in business: LTV:CAC ratio.

LTV accounts for how long customers stay, how much they pay, and how often they expand their usage. A customer who pays $100/month for 2 years has an LTV of $2,400. But if that same customer upgrades to $150/month after 6 months, their LTV increases significantly.

The gold standard for sustainable SaaS businesses is an LTV:CAC ratio of at least 3:1. This means every dollar spent acquiring a customer generates at least three dollars in return. Ratios below 3:1 suggest you're overspending on acquisition; ratios above 5:1 suggest you might be underinvesting in growth.

LTV increases when you reduce churn, increase pricing, or drive expansion revenue through upsells and cross-sells. Smart founders focus on all three levers simultaneously.

Your SaaS metrics:

• Average Revenue Per Account (ARPA): $200/month
• Gross Margin: 80%
• Monthly Churn Rate: 5%

LTV = ($200 × 0.80) ÷ 0.05 = $3,200

If your CAC is $800, your LTV:CAC ratio is 4:1 - a healthy ratio indicating efficient growth.