Definition · also called CLV, CLTV, customer lifetime value, lifetime value
LTV (customer lifetime value) is how much gross profit an average customer brings in over the entire relationship. In subscription businesses it is driven by three numbers: how much a customer pays per month (ARPU), what share of that you keep after direct costs (gross margin) and how long they stay (1 ÷ churn rate).
LTV tells you how much you can afford to spend to win a customer, which is why it is almost always quoted next to CAC as the LTV:CAC ratio.
LTV formula
LTV = ARPU × gross margin ÷ monthly churn rate
- ARPU: average revenue per customer per month.
- Gross margin: revenue minus direct costs (hosting, AI-API calls, payment fees, support) as a percentage. Leave it out and you get “revenue LTV”, which flatters the number.
- 1 ÷ monthly churn = average customer lifetime in months. At 4% churn, that is 25 months.
- Cap it. At very low churn the formula gives absurd lifetimes; many teams cap LTV at 3–5 years.
Worked example
ARPU $30/month, gross margin 80%, monthly churn 4%.
- Average lifetime = 1 ÷ 0.04 = 25 months
- LTV = $30 × 0.80 ÷ 0.04 = $600
Cut churn to 3% and LTV rises to $800. Raise ARPU to $40 at 4% churn and it rises to $800 too: price and retention are interchangeable levers.
LTV benchmarks
LTV has no universal benchmark of its own; it is judged against acquisition cost.
| Benchmark | Value | Source |
|---|---|---|
| LTV:CAC of the best SaaS businesses | above 3, sometimes 7–8 | David Skok, For Entrepreneurs |
| Months to recover CAC, best SaaS businesses | 5–7 months (concern beyond 12) | David Skok, For Entrepreneurs |
LTV in practice: how indie makers use it
Most indie makers never compute LTV formally, but their pricing decisions are LTV decisions:
Launched Paperform with an AppSumo lifetime deal that brought about 3,000 customers in 2016. It gave the founders confidence to quit their jobs, but lifetime buyers bring no recurring revenue: their LTV is the one payment. (source: startupdaily.net)
Started AudioPen with a $19 lifetime deal, then raised it to $150 alongside a $75 annual plan as demand proved out, lifting what each new customer is worth. (source: solveo.co)
Raised Designjoy's monthly price from a few hundred dollars to $5,000 instead of hiring. Higher ARPU on the same churn multiplies LTV. (source: highspirit.substack.com)
Cal AI went the other way, pricing low (around $30 a year) to maximize sign-ups from influencer-driven traffic, trading LTV per customer for volume. (sources: cnbc.com, forbes.com)
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Frequently asked questions
How do you calculate customer lifetime value?
For a subscription business, LTV = average revenue per customer per month × gross margin ÷ monthly churn rate. For example, $30 × 80% ÷ 4% = $600.
What is the difference between LTV and CLV?
None. LTV, CLV and CLTV all mean customer lifetime value.
Should LTV use revenue or profit?
Use gross profit (revenue × gross margin). Revenue-based LTV overstates what a customer is worth, especially for AI products with high per-use API costs.
What is a good LTV?
LTV only means something relative to customer acquisition cost. A common rule of thumb is an LTV at least three times CAC.
Related terms
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Maker examples are paraphrased from the cited sources and from each maker's IndieMakerList profile; revenue is self-reported unless marked verified. Spotted an error? Tell us.