How to calculate the Lifetime Value (LTV) of a Customer

Calculating LTV requires a combination of ARPU, CCR and ACL; find out what that means below.

LTV, or Lifetime Value, measures the total revenue a customer will generate for a business over their lifetime. It is a key metric for SaaS (Software as a Service) companies, as it helps them understand the potential value of each customer and make informed decisions about acquisition and retention efforts.

To calculate LTV for a SaaS company, you will need to know the following:

  1. Average revenue per user (ARPU): This is the average amount of money that each customer pays per month.

  2. Customer churn rate: This is the percentage of customers cancelling their monthly subscriptions.

  3. Average customer lifespan: This is the average length of time a customer remains a paying subscriber.

Once you have these numbers, you can use the following formula to calculate LTV:


LTV = ARPU * (1 / churn rate) * lifespan

For example, if a SaaS company has an ARPU of $100, a churn rate of 5% per month, and an average customer lifespan of 36 months, their LTV would be:

LTV = $100 * (1 / 0.05) * 36 = $7,200

This means that, on average, each customer will generate $7,200 in revenue for the company over their lifetime.


I hope this helps! Let me know if you have any other questions.