TLDR:
Customer Lifetime Value (CLV or LTV) is the total revenue a business expects to earn from a customer over the entire relationship, after accounting for retention and gross margin.
Calculating CLV
Simple CLV = (Average Revenue Per User × Gross Margin) ÷ Churn Rate. More sophisticated CLV models account for changing revenue over time, discount rates, and customer segmentation. For subscription businesses, CLV is calculated as: Monthly ARPU × Gross Margin % ÷ Monthly Churn Rate. CLV should be compared to CAC — the LTV:CAC ratio should typically exceed 3:1 for healthy SaaS economics.
Drivers of CLV
Key drivers include initial purchase value, expansion revenue (upsells, cross-sells), retention rate, and gross margin. Companies increase CLV through tiered pricing, usage-based billing, customer success investment, product expansion, and reducing churn. Net Revenue Retention above 100% means existing customers grow in value over time, dramatically increasing CLV.
CLV by Business Model
CLV varies dramatically by business model. SaaS businesses often have CLVs of $5,000-$500,000+ with multi-year customer relationships. Consumer apps may have CLVs of $20-$200. Enterprise software can exceed $1 million per customer. Understanding your industry’s CLV distribution helps set realistic acquisition cost ceilings.