What is Customer Lifetime Value
Customer Lifetime Value (CLTV) is the revenue or margin that you receive from one customer over the lifetime of that customer. The term “Customer Lifetime Value” is known by many words. It’s also known as Lifetime Value (LTV) or CLTV.
Customer lifetime value is meaningful when compared to your CAC (customer acquisition costs). For example, if it costs $10K to acquire one new customer and your lifetime value is $10K, you’ve got trouble. Your LTV to CAC ratio is equal to 1. Meaning, you made no money off this customer. $10K out the door to acquire the customer (expense) and $10K in the door (revenue or margin).
How to Calculate Customer Lifetime Value
The common way and my favored way to calculate LTV uses the gross margin adjusted formula. The formula is below uses ARR. If you think in MRR terms, replace ARR with MRR and annual churn with monthly churn.
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Additional SaaS Resources
Check out this in-depth post on Customer Lifetime Value at the The SaaS CFO.