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Marketing

Customer Lifetime Value

CLV | LTV

Portrait of Lukas Horvath, co-founder of Roelu Studio
Lukas HorvathCo-founder

What is Customer Lifetime Value?

Customer lifetime value, often abbreviated CLV or LTV, is the total revenue a business expects to earn from a single customer over the duration of their relationship. For subscription businesses, it is calculated from average revenue per account, gross margin, and retention rate. It is the ceiling on what a company can profitably spend to acquire that customer, and the foundation of any honest unit-economics conversation. Without it, CAC is a number floating in space.

Why it matters

CAC without LTV is meaningless. Spending five thousand dollars to acquire a customer is either fantastic or fatal, depending on whether that customer is worth fifty thousand or five hundred over the relationship. LTV is the number that justifies investment in brand, in content, in custom-built websites — the assets that pay back over years, not weeks. Companies that obsess over short-term ROAS and ignore LTV end up optimizing for the wrong customers: the cheap, churny ones who look good in a quarterly report and disappear by year two. The teams that win in B2B SaaS solve LTV first, then go spend on acquisition.

How it works

The basic formula is average monthly revenue per customer, multiplied by gross margin, divided by monthly churn rate. So a customer paying 500 dollars a month at 80 percent margin with a 2 percent monthly churn rate has an LTV of 20,000 dollars. Sophisticated teams segment LTV by customer cohort, plan tier, acquisition channel, and industry. They watch how LTV moves as the product matures and as expansion revenue kicks in. The result is a clear ceiling for CAC — usually somewhere between one-third and one-half of LTV for a healthy SaaS business — and a smarter conversation about where to spend the next dollar.

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