Definition
LTV (Lifetime Value) is the total value you expect from a customer over their lifetime. It's often used to set acquisition targets (CAC/CPA) and to evaluate payback and growth efficiency. Because costs matter, many teams prefer gross profit LTV (revenue * gross margin over the lifetime).
Common formulas (shortcuts)
- Revenue LTV ~ ARPA / churn (with consistent time units).
- Gross profit LTV ~ (ARPA * gross margin) / churn.
- Cohort-based LTV: sum observed gross profit over time from real cohorts (more accurate).
Example
If ARPA is $500/month, gross margin is 80% (0.8), and monthly churn is 2% (0.02), then gross profit LTV ~ ($500 * 0.8) / 0.02 = $20,000.
Common mistakes
- Using revenue LTV while comparing to fully-loaded CAC (mismatch).
- Mixing monthly churn with annual ARPA (time unit mismatch).
- Ignoring expansion or contraction when it materially affects retention dynamics.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "LTV (Lifetime Value)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., LTV Calculator) to sanity-check assumptions.
- Read the related guide (e.g., LTV: How to estimate Lifetime Value (and when not to)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- LTV Calculator: Estimate customer Lifetime Value (LTV) using ARPA, gross margin, and churn rate.
- Cohort LTV Forecast Calculator: Estimate cohort-based LTV using churn, expansion, gross margin, and optional discounting.
- Target CPA from LTV Calculator: Translate LTV and contribution margin into a target CPA (and break-even CPA) for paid acquisition.
- LTV:CAC Calculator: Compute LTV:CAC ratio and CAC payback using ARPA, gross margin, churn, and CAC.
- LTV Sensitivity Calculator: See how gross profit LTV changes as churn and gross margin vary (simple 3x3 sensitivity).
Guides
- LTV: How to estimate Lifetime Value (and when not to): A practical LTV guide: quick models vs cohort-based LTV, unit consistency, and pitfalls with churn and gross margin.
- Cohort LTV forecasting: churn, expansion, discounting (practical model): A practical guide to cohort-based LTV: why it beats simple churn formulas, how to choose assumptions, and how to interpret discounted LTV.
- Target CPA: how to set acquisition targets from LTV and margin: A practical guide to target CPA: connect acquisition cost to LTV, contribution margin, and payback constraints (and avoid common mismatches).
- Blended CAC vs paid CAC: when each is the right metric: CAC depends on what you include. Learn paid-only CAC vs fully-loaded blended CAC, how to avoid mismatches, and how to connect CAC to payback.
- CAC vs CPA: definitions, formulas, and when to use each: CAC vs CPA explained: what each metric measures, how to calculate them, and how to translate CPA into CAC for planning.