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:
1 ÷ Churn Rate
ARPA ÷ Churn Rate
(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:
- Average lifetime
- 1 ÷ 0.02
- 50 months
- Revenue LTV
- $149 ÷ 0.02
- $7,450
- Gross-profit LTV
- ($149 × 0.80) ÷ 0.02
- $5,960
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.
