glossary
LTV
Lifetime Value — the total gross profit a customer is expected to generate before churning; the ceiling on what you can afford to spend acquiring them.
LTV answers the question every acquisition budget depends on: what is one customer actually worth? For subscription businesses the standard shortcut divides margin-adjusted monthly revenue by monthly churn — equivalent to saying a customer churning at 2% a month sticks around for about 50 months.
Use gross margin, not revenue. A $100-a-month customer at 80% margin contributes $80; using the full $100 inflates LTV by a quarter and quietly licenses overspending on acquisition. The same discipline applies to expansion revenue: include it only if your churn rate is measured on the same cohort basis.
LTV’s purpose is the ratio with CAC. The common rule of thumb holds that an LTV:CAC of 3:1 or better is healthy for SaaS — below that, growth burns cash; far above it, you may be underinvesting in growth. Run your own numbers in the CAC & LTV calculator, and see the metrics guide for where LTV sits in the measurement stack.
formula
LTV = average revenue per account × gross margin % ÷ churn rate
worked example
A customer pays $200 a month at 80% gross margin, and the cohort churns at 2% monthly: LTV = 200 × 0.8 ÷ 0.02 = $8,000. Against a $3,000 CAC that is a 2.7:1 ratio — close to healthy, but payback speed decides whether it is fundable.