Customer Lifetime Value (LTV or CLV) is the total revenue a business can expect from a single customer over the entire relationship. LTV is calculated by multiplying average revenue per customer by the average customer lifespan. The LTV:CAC ratio is the most important unit economics metric for SaaS.
LTV = Average Revenue Per Customer × Average Customer Lifespan
Average lifespan = 1 ÷ churn rate. So with 2% monthly churn, average lifespan = 50 months.
Customer Lifetime Value predicts how much revenue a typical customer will generate before they churn. It's the most important metric for understanding the long-term economics of a SaaS business. A high LTV relative to the cost to acquire that customer (CAC) is the foundation of a sustainable business model.
The LTV:CAC ratio tells you how much value you get for every dollar spent acquiring a customer. A ratio of 3:1 is generally considered healthy for SaaS — meaning each customer generates 3× what they cost to acquire. Below 1:1 means you're losing money on every customer. Above 5:1 might mean you're underinvesting in growth.
LTV increases when customers stay longer (reducing churn) or spend more over time (expansion revenue). The highest-leverage LTV improvement is reducing churn through better onboarding, product improvements, and proactive customer success. Expansion revenue from upsells and seat growth is the second-highest lever — it extends lifetime value without requiring new customer acquisition.
| Level | LTV Score |
|---|---|
| Excellent LTV:CAC | 5:1+ |
| Healthy LTV:CAC | 3:1 |
| Caution | 1–3:1 |
| Unsustainable | <1:1 |
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