What Is Customer Lifetime Value (LTV)?
Term 11 Sep 2026 LTVcustomer retentionmarketing metricsCACSaaS
Customer lifetime value (LTV, sometimes CLV) is the total net profit you expect to earn from a single customer across the entire relationship — not the value of their first deal. It's the number that sets the ceiling on what you can afford to spend acquiring a new customer without losing money on them.
Why it matters
Without LTV, marketing budgets get run on gut feel. You shut down a channel because its cost per customer looks high, when in fact it brings in customers who stay three years. Meanwhile you double down on a cheap channel that delivers customers who churn after two months.
The number also helps you rank priorities inside your team. A rep who closes small deals that renew year after year may contribute more than the colleague who lands one large one-off contract. And in businesses selling subscriptions or maintenance agreements, LTV usually reveals that the real growth battle is in renewals, not acquisition.
How to calculate it
The practical formula:
LTV = average deal value × purchases per year × average customer lifespan in years × profit margin
Where each input comes from:
| Input | Source |
|---|---|
| Average deal value | Total revenue ÷ number of deals closed won |
| Purchase frequency | Deals per customer per year |
| Customer lifespan | 1 ÷ annual churn rate |
| Margin | Net profit ÷ revenue |
Three things to watch. Calculate on margin, not revenue, or you'll inflate the figure. Break LTV out by segment or customer size, because a single average hides wide gaps. And always compare it against your customer acquisition cost — the widely accepted healthy ratio is at least 3:1.
A worked example
Take a hypothetical company selling an annual subscription at SAR 12,000, with a 60% margin and 20% annual churn — meaning an average customer lifespan of five years.
LTV = 12,000 × 1 × 5 × 0.60 = SAR 36,000.
If acquisition costs SAR 9,000 per customer, the ratio is 4:1 — room to scale. But if churn rises to 33%, lifespan drops to three years and LTV falls to SAR 21,600, pushing the ratio down to 2.4:1. That's a clear signal that the next riyal belongs in the customer success team, not in ads.