Glossary
Customer lifetime value (CLV or LTV)
Customer lifetime value (CLV or LTV) is the total revenue or gross profit a business expects from one customer over the whole relationship. Teams compare it with customer acquisition cost to decide how much they can spend to win customers.
What Is Customer Lifetime Value (CLV or LTV)?
In short For subscription businesses the simple version is average monthly revenue per customer, times gross margin, divided by monthly churn rate.
Dividing by churn estimates how long a customer stays: at 2% monthly churn, the average customer lasts about 50 months. Revenue-based LTV skips the margin and comes out higher, so say which one you mean.
LTV is a forecast, not a fact, and it is very sensitive to churn: halving churn doubles LTV. ChartMogul points out that the simple formula assumes churn is spread evenly over a customer's life, while real cohorts lose most customers early, so it tends to overstate LTV. Young companies with little history should treat the number with extra care.
Customer Lifetime Value Example
LTV = average monthly revenue per customer x gross margin / monthly churn rateExample: customers pay $400 a month on average, gross margin is 75% and monthly churn is 2.5%. LTV = $400 x 0.75 / 0.025 = $12,000. With a CAC of $3,000, the LTV:CAC ratio is 4:1.
Customer Lifetime Value in Practice
Sales teams use LTV to set how much they can spend per customer and which segments to chase. If mid-market customers have twice the LTV of small businesses at a similar CAC, the outbound list should tilt toward mid-market. Upsells and cross-sells raise LTV, which is why net revenue retention matters as much as new logos.
FAQ
How do you calculate customer lifetime value?
For a subscription business, multiply average monthly revenue per customer by gross margin and divide by the monthly churn rate. $500 a month at 80% margin and 2% churn gives an LTV of $20,000.
What is the difference between LTV and CLV?
None in practice. LTV, CLV and CLTV are different abbreviations for customer lifetime value.
What is a good LTV?
LTV is judged against CAC. SaaS businesses generally aim for an LTV about three times CAC, so a $3,000 CAC calls for an LTV of around $9,000 or more.
How can you increase customer lifetime value?
Reduce churn, raise prices where value supports it, and sell more to existing customers through upsells, cross-sells and expansion into other teams.
Do This in Ken
Do This in Ken
Grow lifetime value with expansion outreach: find other teams and offices at your current customers in Ken Search, then offer them your product through a sequence in Campaigns.
- Module
- Ken Search
- Open in Ken
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The new Ken opens to the waiting list in batches.
Related
Sources
| Source | Checked |
|---|---|
| ChartMogul: Customer lifetime value (LTV) | |
| Salesforce: What is customer lifetime value (CLV) | |
| Stripe: CAC in SaaS (LTV:CAC benchmark) |
Changelog
- Page published.