Customer Lifetime Value estimates the total revenue your SaaS business can expect from a single customer throughout their entire relationship with your company. You calculate LTV by multiplying your average revenue per account by your average customer lifespan.
For example, if customers pay $100 monthly and stay for 24 months on average, your LTV equals $2,400. This metric helps you understand how much you can spend on customer acquisition while remaining profitable.
A strong LTV supports sustainable growth by justifying higher marketing investments. Companies typically aim for an LTV-to-CAC ratio between 3:1 and 5:1. When your LTV reaches $3,000, you can spend up to $600-$1,000 acquiring each customer.
Improving LTV requires focusing on two areas: reducing customer churn through better onboarding and support, and increasing revenue per customer through upgrades and feature expansion.