Revenue & RetentionLTV

Lifetime Value

LTV estimates the total revenue a customer will generate over their entire relationship with your business.

Key Takeaways
  • LTV (or CLV) is the predicted total revenue from a customer over their lifetime, calculated using average revenue per customer and retention rates.
  • Common Mistakes:
  • Using recognized revenue instead of cash received when calculating LTV.
  • Not including gross margin (overstating LTV by ignoring COGS).
  • Calculating LTV from too-short time windows that miss long-term retention patterns.
  • Ignoring expansion revenue when customers regularly upgrade.
  • Using company-wide averages instead of segment-specific LTV.
  • Confusing customer lifetime (in months) with lifetime value (in dollars).

Definition

LTV (or CLV) is the predicted total revenue from a customer over their lifetime, calculated using average revenue per customer and retention rates.

High LTV

Customers stay longer and spend more; strong product stickiness.

Low LTV

Short customer lifespan or low revenue per customer; churn risk.

LTV:CAC > 3:1

Healthy unit economics; profitable customer acquisition.

Formula

LTV = ARPA × Gross Margin % / Churn Rate

Variables

ARPA

Average revenue per account per month or year.

Gross Margin %

Revenue minus cost of goods sold, as a percentage.

Churn Rate

Percentage of customers who cancel per period.

Examples

SaaS LTV calculation

MetricValue
ARPA (monthly)$100
Gross margin80%
Monthly churn rate5%
  1. 1LTV = $100 × 80% / 5%
  2. 2LTV = $80 / 0.05
  3. 3LTV = $1,600
→ LTV = $1,600

Track in Daymark

Data Sources

CSVgoogle sheetspostgreSQL

Required Fields

Customer revenue and churn data
  • customer_id
  • signup_date
  • monthly_revenue
  • churn_date

Sample Questions

  • What is the average LTV?
  • Calculate LTV by customer segment or plan
  • Show LTV:CAC ratio over time
  • What's the LTV for customers acquired in Q1 2024?
  • Compare LTV for annual vs monthly contracts
  • Show LTV distribution across all customers
  • Forecast LTV improvement if we reduce churn by 10%
Calculate LTV

Dashboard Template

1. histogram
LTV distribution

How LTV varies across customers

2. bar
LTV by cohort

LTV for each signup cohort

3. line
LTV:CAC ratio

Unit economics trend

4. table
LTV drivers

ARPA, churn, and margin by segment

Common Mistakes

  • •Using recognized revenue instead of cash received when calculating LTV.
  • •Not including gross margin (overstating LTV by ignoring COGS).
  • •Calculating LTV from too-short time windows that miss long-term retention patterns.
  • •Ignoring expansion revenue when customers regularly upgrade.
  • •Using company-wide averages instead of segment-specific LTV.
  • •Confusing customer lifetime (in months) with lifetime value (in dollars).

FAQ

Q: What's a good LTV:CAC ratio?

A ratio of 3:1 or higher is considered healthy. Below 3:1 may indicate unit economics problems.

Q: Should I use historical or predictive LTV?

Both are useful. Historical LTV looks at actual customer lifespans; predictive LTV uses current metrics to forecast.

Q: How often should I recalculate LTV?

Quarterly is common, or whenever churn rate or ARPA changes significantly.

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