Customer Lifetime Value (LTV)
Short answer
Customer Lifetime Value (LTV) is the total gross profit a customer generates across their relationship with you. It sets the ceiling on what you can rationally spend acquiring them. The conventional institutional benchmark is LTV ≥ 3× CAC.
Worth quotingLTV is mathematically very sensitive to churn — reducing monthly churn from 5% to 3% nearly doubles LTV, because average customer lifespan (1 ÷ monthly churn) rises from 20 months to 33 months at the same revenue level.
Formula
LTV = Avg Revenue per Customer × Gross Margin × Customer Lifespan
Take your average revenue per customer per year, multiply by your gross margin %, then multiply by how many years (or months) a typical customer stays. That's the lifetime profit they generate.
Why it matters
LTV tells you how much you can afford to spend acquiring a customer. The benchmark for SaaS is LTV ≥ 3× CAC and CAC payback under 12 months. Below those thresholds and you're funding growth with venture dollars, not customer profits — durability suffers.
Benchmarks
Worked example
- Avg revenue per customer per year$1,200
- Gross margin80%
- Avg lifespan4 years
LTV = $1,200 × 0.80 × 4 = $3,840 per customer
People also ask
Common questions about Customer Lifetime Value (LTV)
What is Customer Lifetime Value (LTV)?+
Customer Lifetime Value (LTV) is the total gross profit you expect to earn from a customer across their entire relationship with you.
How is Customer Lifetime Value (LTV) calculated?+
Take your average revenue per customer per year, multiply by your gross margin %, then multiply by how many years (or months) a typical customer stays. That's the lifetime profit they generate.
What is a good Customer Lifetime Value (LTV)?+
A healthy customer lifetime value (ltv) is typically around LTV ≥ 3× CAC — saas — strong. Specific targets vary by industry and stage; check our benchmarks above for your sector.
Why does Customer Lifetime Value (LTV) matter?+
LTV tells you how much you can afford to spend acquiring a customer. The benchmark for SaaS is LTV ≥ 3× CAC and CAC payback under 12 months.
See your business's customer lifetime value (ltv).
Paste your numbers and CFO Grade computes this — plus 23 other ratios — in seconds, with your industry's benchmark already loaded.
Related concepts
Where this matters most
See Customer Lifetime Value (LTV) in the context of saas & software.
Industry-specific benchmarks, common pitfalls, and what lenders look for in this sector.