What is LTV?

LTV (Customer Lifetime Value or CLV) is the total net value a customer produces over the relationship. Read with CAC — without LTV, you don't know your marketing budget ceiling. The cornerstone metric for SaaS, subscription, and repeat-purchase e-commerce.

// simple formula

$50 AOV × 3.2 orders/year × 2.8 years × 48% gross margin = $215 LTV. That number sets a healthy CAC ceiling.

// cohort-based LTV (more accurate)

Single-formula LTV depends on assumptions. Cohort method:

• Group customers by acquisition month.
• Track cumulative revenue per cohort each month.
• Plot 12, 24, 36-month curves.
• Asymptote = real LTV.

// SaaS LTV formula

$120 monthly ARPU, 3% monthly churn, 75% gross margin: 120 / 0.03 × 0.75 = $3,000 LTV. Small churn changes drive big LTV swings — 3% → 2% raises LTV from $3K to $4.5K (50%).

// why LTV matters

• Marketing ceiling — LTV/3 = healthy CAC max.
• Segmentation — VIP segments often have 4-8x average LTV; deserve own campaigns.
• Retention priority — acquiring new costs 5-25x more than keeping existing.
• Investor talk — LTV:CAC drives SaaS valuations.

// LTV pitfalls

• Past LTV ≠ future LTV. Markets shift, products change, churn moves.
• Averages hide segments — VIPs washed by single number mislead.
• Skipping gross margin overstates LTV by 100%.