Customer Lifetime Value (LTV or CLV) represents the economic value of a customer to the business across their full engagement. In a subscription context, LTV is typically modelled as: (Average Revenue Per Customer / Monthly Churn Rate) × Gross Margin. A company with $500 ARPU, 2% monthly churn, and 70% gross margin has an LTV of approximately $17,500 per customer.
The LTV model makes explicit the implicit assumptions in the business. A low churn rate dramatically increases LTV because revenue from a customer compounds over time — the difference between 2% and 4% monthly churn roughly halves the LTV. High gross margin amplifies LTV because more of each dollar of revenue reaches the profit line. These two levers are why SaaS businesses with high gross margins and low churn can justify substantial upfront customer acquisition spend.
LTV is most valuable not as a standalone number but in relation to Customer Acquisition Cost (CAC). The LTV:CAC ratio is a standard unit economics benchmark: 3:1 is the widely cited minimum for a healthy SaaS business; 5:1 or higher suggests either exceptional retention or under-investment in growth. Presenting LTV in a pitch without gross margin assumptions and a credible churn rate is a red flag — investors will always interrogate the inputs.