What is Customer Lifetime Value (LTV)?
Customer Lifetime Value (LTV, sometimes CLV) estimates the total value a customer generates across their entire relationship with a product. A simple form is average revenue per customer multiplied by average customer lifespan; more rigorous versions use margins and discount future revenue.
LTV is most meaningful alongside Customer Acquisition Cost (CAC). The LTV:CAC ratio indicates whether a business model is sustainable — a common rule of thumb is that healthy SaaS businesses target roughly 3:1 or higher, meaning each customer returns at least three times what it cost to acquire them.
For PMs, LTV connects product decisions to business outcomes. Improving retention or driving expansion (upsells, cross-sells) raises LTV, which justifies higher acquisition spend and signals a healthier product. It's a key input for pricing and prioritization.
Examples
- A subscription at $50/month with an average 24-month lifespan yields an LTV of ~$1,200.
- A PM justifies an onboarding investment by showing it raises retention and therefore LTV.
Where PMs use this
Related terms
Customer Acquisition Cost (CAC)
The average cost to acquire one new customer, including marketing and sales spend.
Churn Rate
The percentage of customers (or revenue) lost over a given period — the inverse of retention.
Retention
The degree to which users keep coming back to a product over time — the foundation of sustainable growth.
ARR / MRR
Recurring revenue normalized to an annual (ARR) or monthly (MRR) figure — the core SaaS revenue metric.
Unit Economics
The direct revenues and costs associated with a single unit (usually a customer), revealing whether a model is profitable.