What is Customer Lifetime Value (LTV)?
Nexa Consultancy | Startup & Finance Glossary
Customer Lifetime Value (LTV or CLV) is a metric that represents the total net profit a company can expect to generate from a single customer throughout their entire relationship with the company.
For Startups: LTV helps startups understand the long-term value of their customers, which is crucial for making informed decisions about sales, marketing, and customer support investments. A high LTV indicates a sticky product and loyal customers. You can calculate yours using our LTV to CAC calculator.
For SaaS: For SaaS businesses, LTV is a critical component of unit economics. It is often calculated by taking the average revenue per account (ARPA) and dividing it by the customer churn rate. A high LTV allows a SaaS company to have a higher, yet sustainable, Customer Acquisition Cost (CAC).
Calculation: A simple LTV calculation is (Average Revenue Per User * Gross Margin) / Churn Rate. For example, if a customer generates ₹2,000 in monthly revenue with a 75% gross margin, and the monthly churn rate is 2%, the LTV is (₹2,000 * 0.75) / 0.02 = ₹75,000.