LTV

Category: Metrics & KPIs · Level: Entry · Also called: Lifetime Value, Customer Lifetime Value, CLV

TL;DR

Lifetime Value — the total margin a customer is expected to generate over their entire relationship with the company.

LTV is the present value of all margin generated by a customer over their relationship. The simplest formula is ARPU × gross margin × customer lifetime (1 ÷ churn rate). The more accurate version discounts future cash flows and accounts for expansion.

LTV is most useful in conjunction with CAC. The LTV:CAC ratio (>3 is healthy in SaaS) and the CAC payback period (<18 months for venture-scale SaaS) together describe whether the unit economics support venture-scale growth.

Formula

LTV = ARPU × Gross Margin ÷ Monthly Churn Rate

  • ARPU — Average revenue per user per month
  • Gross Margin — Contribution margin per dollar of revenue
  • Monthly Churn Rate — Percentage of customers leaving each month

Simplest formulation; production-grade LTV adds discounting and per-cohort churn segmentation.

Worked example

ARPU $50/mo, gross margin 80%, monthly logo churn 2%. LTV = ($50 × 80%) ÷ 2% = $2,000 per customer. Combined with $400 CAC, LTV:CAC = 5×.

Common pitfalls

  • Reporting LTV without subtracting cost to serve.
  • Using a churn rate that's not yet stable.
  • Computing LTV across customer segments with very different behavior.

When this shows up in a pitch deck

LTV and the LTV:CAC ratio appear on the Unit Economics slide. Investors discount LTV claims that aren't backed by stable cohort retention.

See LTV in context

LTV shows up most often in these scoring rubrics and investor profiles — jump straight to who cares about it and how to pitch them.

In VC frameworks

Related terms

  • CAC — Customer Acquisition Cost — the total sales and marketing spend required to acquire one new paying customer over a given period.
  • LTV:CAC Ratio — The ratio of customer lifetime value to customer acquisition cost — a headline measure of unit economics health.
  • CAC Payback Period — The number of months required for the gross profit from a customer to repay the cost of acquiring them.
  • Gross Margin — The percentage of revenue remaining after subtracting cost of goods sold (COGS), reflecting the unit economics of delivering the product.
  • Logo Churn — The percentage of customers (logos) who cancel in a given period, regardless of how much revenue they represented.

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