What is Customer LTV

Customer lifetime value (LTV) is a calculation of how much profit a business could make from one customer over the whole period that they remain a customer.

Say you charge $50 per month for your service and a customer stays with you for six months. Their LTV would be $50 × 6 = $300.

The main reason customer LTV is so essential for your SaaS business is that it manages what you can do and spend to acquire new customers. There is one more important metric that is directly related to the LTV — Сustomer acquisition cost (CAC). In simple terms, it is the amount you pay to attract new customers. For example, if your customer acquisition cost is $50 and his LTV is $200, you’re basically making $150. So, we see that the smaller the CAC metric the bigger the LTV metric. And the faster you can grow your SaaS business.

LTV calculation:

LTV = ARPU * Customer Lifetime

Note: Average Revenue Per Paying User (ARPU) is the average amount of money you make from a paying customer.

Customer lifetime is a period when the customer pays for the use of your product.

To calculate LTV, we can also use customer churn.

LTV = ARPU/User Charm

The higher your user churn, the lower your LTV will be.

Average Revenue Per Paying User (ARPU)