LTV: definition, calculation and growth strategies
Updated on February 22, 2026
Quick definition
LTV (Lifetime Value), or customer lifetime value, is the total revenue a customer generates for a company throughout their commercial relationship. LTV is a fundamental metric for determining how much it is profitable to invest in acquiring and retaining a customer, and for calibrating the LTV/CAC ratio.
How it works
Formula
LTV = AOV × Annual purchase frequency × Customer lifetime (years)
Example: average order value of €80, purchase frequency of 3 times/year, customer lifetime of 4 years → LTV = 80 × 3 × 4 = €960. For a SaaS: LTV = Monthly ARPU / Monthly churn rate (e.g. €50 / 5% = €1,000).
There are several formulas for calculating LTV depending on the desired complexity.
E-commerce formula: LTV = AOV × Annual purchase frequency × Customer lifetime. With margin: LTV = (AOV × Frequency × Lifetime) × Gross margin.
SaaS formula: LTV = ARPU / Monthly churn rate. If a customer pays €50/month and churn is 5%, LTV is 50 / 0.05 = €1,000.
The challenge lies in estimating customer lifetime, which is often hard to predict. It is preferable to compute a historical LTV (based on real customer cohorts) rather than a projected LTV.
The LTV/CAC ratio is the compass of acquisition strategies:
- Ratio > 3: healthy strategy
- Ratio < 1: the company is losing money on every customer acquired
Why it matters
LTV is one of the most strategic metrics because it defines the maximum reasonable budget to invest in acquiring a customer.
For investors and leadership teams, LTV is also an indicator of the health and scalability of the business model. A company whose LTV grows over time demonstrates improving retention and rising customer-base value.
SaaS valuation multiples are calculated as a multiple of MRR or ARR, which are directly derived from LTV.
How to improve or use it
- 1Reduce churn rate with loyalty programs, exclusive content and quality customer service.
- 2Increase AOV via upsell and cross-sell techniques.
- 3Increase purchase frequency through automated email campaigns and personalised reminders.
- 4Offer annual subscriptions to increase predictability and relationship duration.
- 5Segment by potential LTV and focus retention efforts on the highest-value segments.
With Sublim
Sublim lets you track customer behaviour over time and identify the most loyal and profitable cohorts. By analysing visit and conversion patterns of returning users, you anticipate your customers' LTV and target your retention actions at the right moment — in a privacy-first environment compliant with GDPR.
Frequently asked questions
What is the difference between LTV and CLTV?
LTV (Lifetime Value) and CLTV (Customer Lifetime Value) are two terms for the same metric: the total value generated by a customer over the entire relationship with the company. CLTV is simply a more explicit phrasing that specifies the value is the customer's. In practice, both terms are used interchangeably in the digital marketing space.
What LTV/CAC ratio should I target?
The generally accepted rule is to target an LTV/CAC ratio above 3: this means every customer brings in at least 3 times what they cost to acquire. A ratio of 1 means you spend as much to acquire a customer as they bring back — an unviable model. A ratio above 5 is excellent and indicates very efficient acquisition or strong retention.
How do I calculate LTV for a SaaS?
For a SaaS, the recommended formula is: LTV = Monthly ARPU / Monthly churn rate. If your average revenue per user is €100/month and your churn is 3% per month, LTV is 100 / 0.03 ≈ €3,333. For a more conservative version including gross margin: LTV = (ARPU × Gross margin %) / Monthly churn.
Related terms
CAC (Customer Acquisition Cost) represents the total amount invested —…
Churn rate (or attrition rate) is the percentage of customers or subsc…
MRR (Monthly Recurring Revenue) is the monthly recurring revenue repre…
AOV (Average Order Value) is the average order value that measures the…