Customer Lifetime Value (CLTV) is the total revenue a business expects to earn from a customer throughout their entire relationship. It helps businesses calculate the per customer profitability in the long run and guides decisions in marketing, sales, and customer success.
CLTV can be calculated by multiplying ARPU with Average Customer Lifespan (in months). You can also calculate CLTV by multiplying APV (Average Purchase Value) with PF (Purchase Frequency) and CL (Customer Lifespan).
Step 1: Calculate Average Purchase Value
Average Purchase Value = Total Revenue/Number of Purchases
Step 2: Calculate Average Purchase Frequency
Average Purchase Frequency = Number of Purchases/Number of Unique Customers
Step 3: Calculate Customer Value
Customer Value = Average Purchase Value × Average Purchase Frequency
Step 4: Calculate Average Customer Lifespan
This is the average duration (in months or years) a customer stays active with your business.
Step 5: Calculate CLTV
CLTV = Customer Value × Average Customer Lifespan
CLTV= ARPU x Customer Lifespan (in Months)
Or
CLTV= APV x PF x CL
The general ideal CLTV benchmark for SaaS companies would be: 3-5 times of CAC (Customer Acquisition Cost).
Customer Acquisition Cost
Churn Rate
Retention Rate
Average Revenue Per User
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Several key elements impact LTV, including customer retention, average order value, purchase frequency, and product margins. Improving any of these can increase LTV. For example, better onboarding or loyalty programs may extend a customer's lifespan; while bundling or upselling can increase average revenue.
Absolutely. LTV often varies widely across customer cohorts, by geography, acquisition channel, company size, or behavior. Segmenting LTV allows for smarter budgeting, pricing, and targeting strategies, ensuring resources are directed toward high-value customer groups.
Churn rate has a direct inverse relationship with LTV. The faster customers churn, the shorter their lifespan, and the lower their total value. Even small improvements in retention can lead to significant increases in LTV, making churn management a key lever for growth.