Calculate LTV using simple, margin-adjusted, or predictive methods. Compare LTV to CAC with health indicators for SaaS and subscription businesses.
Formula: LTV = ARPU ÷ churn rate. Churn 5.00% → lifespan ≈ 20.0 months.
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Quick answers to common questions
LTV (also CLV or CLTV) is the total revenue a business can expect from a single customer throughout their relationship. It is one of the most important business metrics because it tells you how much you can afford to spend acquiring a customer (CAC). LTV > 3× CAC is generally considered a healthy SaaS business.
A ratio of 3:1 (LTV is 3 times CAC) is the benchmark for healthy SaaS businesses. Below 1:1 means you lose money on every customer. 1-3:1 means growth is expensive. Above 5:1 may mean you are underinvesting in growth. The ratio should also consider payback period — recovering CAC in under 12 months is ideal.
Simple LTV = Average Revenue Per User (ARPU) / Monthly Churn Rate. Example: ARPU ₹500, churn 5% per month. LTV = 500 / 0.05 = ₹10,000. This assumes constant ARPU and churn. Granular method multiplies ARPU by gross margin and divides by churn for a more accurate profit-based LTV.
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