What is customer lifetime value?
Customer lifetime value, or LTV, is the total gross profit you earn from a customer across the whole relationship. It is not their first payment or their annual contract. It is everything they pay, multiplied by your margin, for as long as they stay.
LTV is the number that tells you how much you can afford to spend acquiring a customer. On its own it means little. Paired with CAC, it tells you whether the model works.
The customer lifetime value formula.
The B2B SaaS version: LTV = average revenue per account times gross margin, divided by your churn rate. Churn sets the lifespan, because the average customer stays 1 divided by the churn rate. A 2% monthly churn means an average life of 50 months.
If you already know the average lifespan, the second mode uses it directly: LTV = revenue per account times lifespan times gross margin.
A worked example.
An account pays 500 dollars a month at an 80% gross margin, and 2% of customers churn each month. The average customer stays 50 months. LTV is 500 times 0.8 times 50, which is 20,000 dollars.
What is a good LTV?
There is no good LTV in isolation, because the number scales with your price. A 20,000 dollar LTV is strong for a 100 dollar plan and weak for a 5,000 dollar contract. The number that matters is the ratio of LTV to CAC. Aim for 3 to 1 or better.
What you can judge from LTV directly is the lifespan behind it. Churn is the lever. At under 2% monthly churn, customers stay long enough that LTV holds. Above 5%, customers leave before they pay off, and no amount of acquisition fixes it. When LTV is low, the fastest fix is usually retention, not more spend.
How to improve your LTV.
Three levers move LTV: charge more per account, hold customers longer, or expand revenue inside the account. The first is pricing. The other two are retention and expansion, and both depend on customers finding and adopting the parts of your product that make them stay.
Search is part of that. Prospects who arrive through organic search for a specific problem tend to be better qualified and churn less than paid traffic chasing a discount. If your LTV is capped by churn, see how we build qualified organic pipeline for B2B SaaS and how we tie content to pipeline and retention.