Formulas
Lifetime revenue = AOV × Purchase frequency × Lifespan
LTV = Lifetime revenue × Gross margin
LTV : CAC = LTV ÷ CAC
Set gross margin to 100% if you want pure revenue-based LTV. Use gross-profit LTV when comparing against acquisition cost — it's the figure that actually pays back CAC.
Reading the ratio
| LTV : CAC | What it usually means |
|---|---|
| < 1 : 1 | Losing money on every customer |
| 1 – 1.5 : 1 | Break-even or marginal — need to fix |
| 3 : 1 | Healthy SaaS benchmark |
| > 5 : 1 | Probably under-investing in growth |
FAQ
How do I estimate customer lifespan?
If you have churn data, lifespan ≈ 1 / monthly-churn-rate (in months) or 1 / annual-churn-rate (in years). For a SaaS with 5% monthly churn, lifespan ≈ 20 months.
Should I discount future cash flows?
Strictly yes — future revenue is worth less than today's. For most operational decisions, undiscounted LTV is fine. For long-lifespan businesses (5+ years), apply a 10–15% annual discount rate.
What if customers buy at very different rates?
Segment your customers and compute LTV per segment. A "whales and minnows" customer base will give a misleading average if treated as one cohort.