Customer Lifetime Value (CLV or LTV)

What is Customer Lifetime Value (CLV or LTV)?

Customer Lifetime Value (CLV or LTV) is the predicted net revenue a customer will generate over the entire duration of their relationship with a business. It helps businesses estimate how much they can invest in customer acquisition and retention while remaining profitable.

An Example to Understand Customer Lifetime Value (CLV or LTV)

If a customer subscribes to a SaaS product for 12 months at $100 per month, their LTV would be $1,200. This figure helps the business determine how much to spend on acquiring similar customers.

Benefits of Using Customer Lifetime Value (CLV or LTV)

• Guides Marketing and Sales Strategy: Knowing LTV helps businesses allocate resources effectively and decide how much to invest in acquiring new customers.
• Predicts Revenue: CLV helps businesses predict future revenue from existing customers, which aids in long-term planning.
• Improves Customer Retention: By focusing on increasing LTV, businesses can prioritize efforts to retain customers and increase repeat purchases or renewals.

Why is Customer Lifetime Value (CLV or LTV) Important for Startups and SaaS?

For startups and SaaS businesses, CLV is a critical metric for understanding the long-term value of each customer. It helps guide decisions about customer acquisition costs, retention strategies, and overall growth targets.

FAQs

How Do I Calculate CLV?

CLV can be calculated using the formula: LTV = (Average Purchase Value) × (Purchase Frequency) × (Customer Lifespan).

What’s a Good LTV for SaaS?

A good LTV varies by company, but it should generally be at least 3 times your Customer Acquisition Cost (CAC) for sustainable growth.