What is LTV (Customer Lifetime Value)?
LTV is the total value a customer generates over their entire relationship with your business. For SaaS, it is shaped by your ARPA, gross margin, and churn rate.
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Definition
LTV (Customer Lifetime Value) — also written CLV or CLTV — is the total value a customer generates over their entire relationship with your business. For SaaS, it's the recurring value of a subscription across its lifetime, shaped by how much a customer pays (ARPA), your gross margin, and how long they stay (the inverse of churn). LTV is what you compare against CAC to judge whether acquisition is worth it.
How to calculate LTV.
The simplest SaaS formula ties LTV directly to churn:
Average Customer Lifetime =
1 ÷ Churn Rate
Revenue LTV =
ARPA ÷ Churn Rate
Gross-Profit LTV =
(ARPA × Gross Margin) ÷ Churn Rate
Use gross-profit LTV for real decisions — you keep margin, not revenue. Note the churn relationship: lower churn means a longer lifetime and a higher LTV, which is why retention is an LTV lever, not just a revenue one. For businesses with strong expansion, an expansion-adjusted LTV uses net revenue retention to reflect customers growing over time.
LTV example.
A customer paying $149/mo, at 2% monthly churn and 80% gross margin:
Halve the churn to 1.0% and the average lifetime doubles to 100 months — LTV is extraordinarily sensitive to customer retention.
Why LTV matters for attribution.
LTV isn't uniform across your customer base — it varies enormously by acquisition channel. A channel that brings customers who stay and expand produces high-LTV customers worth far more than their CAC implies; another might acquire at the same cost but churn fast, producing low-LTV customers that quietly lose money.
You only see this when LTV is measured per acquisition source. Signal Sparrow computes LTV from real Stripe data and ties it to the channel that acquired each cohort — so acquisition decisions weigh not just conversion cost, but the lifetime value each channel actually delivers. Paired with CAC, that's the LTV:CAC ratio that tells you which channels to scale.
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LTV (Customer Lifetime Value) is the total value a customer generates over their entire relationship with your business. For SaaS, it reflects recurring revenue across the subscription's lifetime, shaped by ARPA, gross margin and churn.
The simplest SaaS formula is ARPA ÷ churn rate for revenue LTV, or (ARPA × gross margin) ÷ churn rate for gross-profit LTV. Average customer lifetime equals 1 ÷ churn rate.
Gross profit, for real decisions — you keep margin, not revenue. Gross-profit LTV gives a more accurate picture of what a customer is truly worth relative to acquisition cost.
They're inversely linked: lower churn means a longer average lifetime and a higher LTV. Because LTV divides by churn, small retention improvements produce large LTV gains.
LTV is compared against CAC to judge acquisition efficiency — the LTV:CAC ratio. It also guides how much you can afford to spend acquiring customers and which channels deliver the most durable value.
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