What is Lifetime Value (LTV)?

LTV is a prediction of the net profit attributed to the entire future relationship with a customer. To calculate LTV, follow these steps for a given time period: This is a critical aspect of the digital ecosystem, offering numerous examples and case studies that illustrate its application across different industries and scenarios.


Let’s consider a B2B software-as-a-service (SaaS) company that offers project management software to businesses.

Average Annual Contract Value (ACV): The average annual contract value per customer is $10,000.

Average Customer Lifespan: The average customer retention period is 3 years.

Customer Acquisition Cost (CAC): The company spends $20,000 on marketing, sales, and onboarding activities to acquire new clients.

Using the formula:

LTV =AverageAnnualContractValue√óAverageCustomerLifespan/ Customer Acquisition Cost

In this example, the Lifetime Value (LTV) of a customer for the SaaS company is $1.5. This means that, on average, the company expects to earn $1.5 in revenue for every $1 spent on acquiring new customers. This insight helps the company evaluate the effectiveness of its sales and marketing efforts and allocate resources to maximize customer lifetime value.

Go back to the Marketing Glossary >>