Customer Lifetime Value (LTV) measures the gross margin contribution of an average customer over their entire relationship with you. The standard SaaS formula: LTV = (monthly revenue per user × gross margin %) / monthly churn rate. The intuition: at a 2% monthly churn rate, average customer life is 1/0.02 = 50 months; multiply by monthly gross margin contribution and you get LTV.

Healthy LTV/CAC ratios (LTV divided by Customer Acquisition Cost) typically run at 3x or higher for sustainable SaaS unit economics. LTV is also the upper bound on what you can rationally spend to acquire a customer — though you should aim well below LTV to leave margin for other costs and risk. Watch the formula's assumptions: it assumes constant churn rate (real-world churn often spikes early then declines), no expansion revenue (modern SaaS often has Net Revenue Retention >100% via upsell/expansion, which lifts effective LTV), and no time-value-of-money discounting (a $1 of margin in 5 years is worth less than a $1 today).

For internal decisioning, layer in: net revenue retention (NRR) — if your existing customers grow spend over time, your effective LTV is higher than the simple formula suggests. Cohort analysis vs the constant-churn assumption — your real customer base may have very different lifetimes than the simple math implies. Pair this with the CAC Calculator to size your acquisition budget.