LTV (Customer Lifetime Value)
LTV definition for SaaS and AI founders: what it means, how to calculate it, and common pitfalls when reading it in dashboards.
Lifetime value estimates the gross profit a customer generates before churning. Using gross profit rather than revenue keeps it honest for products with real cost-to-serve.
Formula
LTV = ARPA × Gross margin % ÷ Monthly churn %
In practice
LTV is very sensitive to churn; small changes in churn swing it dramatically.
Related terms
Related
- ARPAAverage MRR per paying customer.
- ARRAnnualized recurring revenue: MRR multiplied by twelve.
- CACSales and marketing spend per new customer.
- ChurnCustomers or recurring revenue lost in a period.
- COGSThe direct cost of delivering your product to existing customers.
- Contribution marginRevenue minus all variable costs, including variable sales costs.
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