Lifetime Value (LTV)
The total revenue a business can expect from a single customer account over the entire duration of their relationship, accounting for churn, expansion, and gross margin.
Why LTV Is the Most Abused Metric in SaaS
Every SaaS founder has an LTV number. Very few have an accurate one. The most common sin is calculating LTV on revenue instead of gross margin. The second most common sin is ignoring expansion and contraction. The result is a number that looks impressive in pitch decks but means nothing operationally.
The Right Way to Calculate It
Start with ARPU (average revenue per user per month). Multiply by gross margin percentage. Divide by monthly logo churn rate. That gives you a baseline LTV. Then layer in net revenue retention — if your NRR is above 100%, your actual LTV is significantly higher because existing customers grow over time.
Basic formula: LTV = (ARPU x Gross Margin) / Churn Rate
NRR-adjusted formula: LTV = (ARPU x Gross Margin x NRR) / Churn Rate
LTV Benchmarks by Segment
| Segment | Typical LTV | Typical Lifespan |
|---|---|---|
| Enterprise ($100K+ ACV) | $300K-1M+ | 5-8 years |
| Mid-Market ($25K-100K ACV) | $50K-200K | 3-5 years |
| SMB ($5K-25K ACV) | $10K-50K | 2-3 years |
| Self-Serve (under $5K) | $2K-10K | 12-24 months |
How to Increase LTV Without Raising Prices
Three levers: reduce churn, increase expansion revenue, and improve gross margin. Reducing churn from 5% to 3% monthly nearly doubles LTV. Adding a usage-based component creates natural expansion. Automating onboarding improves margins. Most companies focus on acquisition when the real money is in retention.
Frequently Asked Questions
How do you calculate LTV for SaaS?
The simplest formula is ARPU times Gross Margin divided by Monthly Churn Rate. For a $500/mo ARPU with 80% gross margin and 3% monthly churn, LTV = ($500 x 0.80) / 0.03 = $13,333. For more accuracy, factor in expansion revenue — companies with strong NRR can have LTV 2-3x higher than the basic formula suggests.
What is a good LTV for B2B SaaS?
There is no universal good LTV — it depends on your CAC. The benchmark is LTV:CAC of 3:1 or higher. Enterprise SaaS companies often see LTV of $100K-500K+. Mid-market lands around $20K-80K. SMB SaaS typically falls in the $3K-15K range. What matters is the ratio, not the absolute number.
Should LTV include gross margin?
Yes. LTV should always be gross-margin-adjusted. Revenue means nothing if it costs you 60 cents to deliver every dollar. A $100K revenue LTV with 75% margins is actually $75K. Investors will call you out if you present revenue-based LTV — it inflates the number and hides delivery cost problems.
