What Is LTV (Customer Lifetime Value)?
How much revenue a customer generates over their entire relationship with your product.
Definition
Customer Lifetime Value (LTV or CLV) estimates the total revenue a single customer will generate over their entire relationship with your business. It combines how much they pay, how often, and how long they stay.
LTV is a forward-looking metric — it projects future revenue based on current behavior patterns. This makes it essential for determining how much you can afford to spend on customer acquisition.
How LTV Is Calculated
The simplest formula: LTV = ARPU ÷ Churn Rate. If your average revenue per user is $50/month and monthly churn is 5%, then LTV = $50 ÷ 0.05 = $1,000.
A more nuanced approach accounts for expansion revenue: LTV = (ARPU × Gross Margin) ÷ Churn Rate. Including gross margin gives you the profit-weighted LTV, which is more relevant for unit economics analysis.
Varsal calculates LTV using your actual subscriber data from connected payment providers.
Track this metric live in your dashboard →Why LTV Matters
LTV tells you the upper bound of what you should spend to acquire a customer. If LTV is $1,000, spending $500 on acquisition (CAC) gives you a 2:1 return.
LTV also reveals which customer segments are most valuable. Enterprise customers with low churn and high expansion may have 10x the LTV of self-serve customers — which should inform your go-to-market strategy.
LTV Benchmarks
The LTV:CAC ratio is the standard benchmark. A ratio of 3:1 or higher is considered healthy — meaning you earn $3 for every $1 spent on acquisition.
Below 1:1 means you are losing money on every customer. Between 1:1 and 3:1 suggests room for improvement in either retention or acquisition efficiency. Above 5:1 may indicate you are under-investing in growth.
How to Increase LTV
Three levers: increase ARPU (through upsells, cross-sells, and pricing optimization), reduce churn (improve product value and customer success), and improve gross margin (reduce cost of delivery).
Expansion revenue is the most powerful LTV lever. If customers naturally upgrade over time, your LTV increases without any change in churn. Build your product with clear upgrade paths — more features, more seats, more usage.
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