# What is LTV (customer lifetime value)?

> LTV, customer lifetime value, is what one customer is worth over the time they stay. The formula, revenue vs margin LTV, and how it pairs with CAC.

**LTV (customer lifetime value)**: LTV is an estimate of the total revenue, or gross profit, a business earns from one customer over the whole time they stay.

LTV, also called CLV or CLTV, is an estimate of how much revenue, or gross profit, one customer brings in over the whole time they stay with you.

## The short definition

**Lifetime value** answers one question: what is a new customer worth? For a subscription product, a customer pays a roughly steady amount each month until they cancel. Multiply what they pay by how long they stay and you have their lifetime value.

Because how long they stay is about one divided by monthly churn, the usual formula is:

**LTV = ARPU x gross margin / monthly churn**

where [ARPU](https://makerhandle.com/glossary/arpu) is average monthly revenue per customer. $30 a month, 80% margin and 4% churn gives $30 x 0.8 / 0.04 = **$600**.

## Revenue LTV or margin LTV

Some tools leave margin out. Stripe's Billing analytics, for example, calculates subscriber lifetime value as ARPU divided by subscriber churn rate, which is lifetime revenue. Including gross margin (revenue left after hosting, payment fees and support) gives lifetime gross profit, which is the number to use when deciding what you can spend to win a customer.

Neither is wrong. They answer different questions, so say which one you mean.

## LTV and CAC

LTV is most useful next to [CAC](https://makerhandle.com/glossary/cac), the cost of acquiring a customer. If a customer is worth $600 in gross profit and costs $150 to win, every new customer pays back four times over. If they cost $700 to win, growth loses money.

A ratio of about 3 : 1 is a rule of thumb often quoted for SaaS. Bootstrapped makers who grow through content and communities mostly spend time rather than money, so CAC is hard to pin down; LTV still tells you how much a cut in churn is worth. Try both in the [LTV calculator](https://makerhandle.com/tools/ltv-calculator).

## Where it goes wrong

LTV assumes churn stays flat, and early on it does not. With 30 customers, one cancellation moves churn, and LTV with it, a lot. A month with no cancellations makes the formula divide by zero, which does not make customers priceless. Use a few months of churn, treat the answer as a range, and recalculate every quarter. The [churn rate](https://makerhandle.com/glossary/churn-rate) entry covers how to measure the input.

## Sources

- [Stripe docs: Billing analytics metric definitions](https://docs.stripe.com/billing/subscriptions/analytics)

## Questions

### What does LTV stand for?

Lifetime value, short for customer lifetime value. It is also written CLV or CLTV.

### How do I calculate LTV for a SaaS?

Average monthly revenue per customer times gross margin, divided by monthly churn. $30 x 80% / 4% is $600.

### What is a good LTV?

There is no absolute number. What matters is LTV compared with what it costs you to acquire a customer, often stated as the LTV to CAC ratio.

### Is LTV the same as revenue per customer?

No. Revenue per customer (ARPU) is per month. LTV is over the whole time a customer stays.

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Source: https://makerhandle.com/glossary/ltv
makerhandle: makerhandle is a link in bio for makers and founders: every project with its status and revenue verified from Stripe, Paddle and more.