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Formula, in SaaS Metrics

Customer Lifetime Value (LTV) Formula

Customer Lifetime Value (LTV) is a metric that estimates the total revenue a business can reasonably expect from a single customer account over their relationship with the company. Understanding LTV helps SaaS businesses to make data-driven decisions on marketing spend, customer retention, and product development.

4 variables. Published Mar 12, 2026. Updated Mar 27, 2026. By AI Biz Hub.

Formula
LTV = Average Purchase Value x Purchase Frequency x Customer Lifespan

Variables

LTV

LTV

The total revenue (or gross profit) a customer is expected to generate over the whole relationship, in currency units. The upper bound on profitable acquisition spend — when measured on gross margin. Revenue-based LTV overstates the ceiling by COGS.

APV

Average Purchase Value

The average value of a single purchase, in currency units. For subscriptions this is the recurring charge per billing cycle.

PF

Purchase Frequency

How often a customer buys within the period, as a count (for example 12 for monthly billing over a year). Multiplies purchase value into periodic revenue.

CL

Customer Lifespan

The expected length of the customer relationship, in the same period unit as purchase frequency (years or months). Often estimated as one divided by the churn rate.

Step by step

  1. 1

    Set the baseline case with the real calculator inputs.

    Avg Purchase Value = $50.00, Purchase Frequency Per Year = 4, Customer Lifespan Years = 3, Acquisition Cost = $100

  2. 2

    Keep purchase value, frequency, and lifespan on matching time units so they multiply cleanly (all annual or all monthly).

    A 49 monthly charge with 12 purchases a year and a 3-year lifespan stays on a monthly-to-annual footing.

  3. 3

    Apply the formula and read the first calculator outputs, not just the headline assumption.

    The calculator lands with clv at 600 and annual value at $200.

  4. 4

    Re-run with a shorter lifespan or higher churn to see how fragile LTV is to retention, which usually moves it more than price.

    Cutting lifespan from 3 years to 18 months halves LTV without touching price.

Worked example

Customer Lifetime Value sample case

Avg Purchase Value

$50.00

Purchase Frequency Per Year

4

Customer Lifespan Years

3

Acquisition Cost

$100

LTV = Average Purchase Value x Purchase Frequency x Customer Lifespan using avg purchase value $50.00, purchase frequency per year 4, customer lifespan years 3, acquisition cost $100.

The calculator lands with clv at 600 and annual value at $200.

Common variations

Scenario variants are useful because fixed assumptions rarely survive contact with real life unchanged.
Use Customer Lifetime Value Calculator to compare the baseline result with one stressed case before relying on a single answer.

Run the numbers next

  • Run the Numbers CAC Calculator

    Calculate customer acquisition cost, payback period, and LTV:CAC efficiency.

  • Run the Numbers Churn & Retention Calculator

    Estimate recovered customers and revenue lift from retention improvements.

  • Make the Call Business Valuation Calculator

    Estimate business worth using revenue, SDE, and EBITDA multiples with blended range.

Questions people ask next

What is the customer LTV formula?

LTV = Average Purchase Value x Purchase Frequency x Customer Lifespan. It multiplies the average value of a single purchase by how often a customer buys within the period and the expected length of the relationship, giving the total revenue a customer is expected to generate. Use gross-margin LTV — not revenue LTV — to set acquisition spend limits; spending revenue-LTV guarantees a loss.

How do I estimate customer lifespan for the LTV formula?

Customer lifespan is the expected length of the relationship, measured in the same period unit as purchase frequency (years or months). It is often estimated as one divided by the churn rate. Keep purchase value, frequency, and lifespan on matching time units so they multiply cleanly.

Can you show an LTV calculation example?

With an average purchase value of $50.00, a purchase frequency of 4 per year, and a customer lifespan of 3 years, the calculator lands with a CLV of 600 and an annual value of $200. That comes from multiplying purchase value by frequency for annual revenue, then by the lifespan.

Why does retention matter so much for lifetime value?

Retention usually moves LTV more than price does. Re-running with a shorter lifespan or higher churn shows how fragile the number is, for example cutting lifespan from 3 years to 18 months halves LTV without touching price. Because lifespan is roughly one divided by churn, small retention gains compound into large LTV gains.

Sources

  1. What Is Customer Lifetime Value? The Complete Guide to CLV , Shopify
  2. Customer Lifetime Value Formula: How to Calculate CLV , Klaviyo

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