Written by — Co-Founder, Expert Sapiens
Reviewed March 2026
Business Strategy
What Is Customer Lifetime Value (LTV)?
Definition
Customer Lifetime Value (LTV) is the total revenue a business can expect from a single customer over the entire duration of their relationship — a fundamental input into unit economics and acquisition strategy.
LTV is most commonly calculated as (Average Revenue Per User × Gross Margin) ÷ Churn Rate. For a SaaS business charging $100/month with 80% gross margin and 5% monthly churn, LTV ≈ $1,600. LTV models can be more sophisticated, incorporating expansion revenue, referral value, and customer cohort analysis. The LTV:CAC ratio is the core measure of acquisition efficiency — if LTV is $1,600 and CAC is $400, the ratio is 4:1, generally considered healthy. Improving LTV is accomplished through reducing churn, increasing average contract value through upsells, and lengthening customer relationships.
Why it matters
LTV is the denominator that makes CAC make sense. A company spending $1,000 to acquire a customer with $500 LTV is destroying value with each acquisition; one with $5,000 LTV can profitably spend much more to acquire. Understanding and improving LTV is one of the highest-leverage growth levers available. A finance advisor or marketing consultant can help you model LTV by cohort, segment, and channel.