Customer Lifetime Value (CLTV)
What Is Customer Lifetime Value (CLTV)?
CLTV is the total predictable revenue your business can expect from a customer account over the entire duration of their relationship.
It factors in:
- Average revenue per customer
- Customer lifespan
- Retention and expansion behaviors
In SaaS, where customer relationships compound over time, CLTV helps teams understand not just who stays—but who grows, and how much they’re worth.
Why CLTV Matters in SaaS CX
CLTV turns customer relationships into measurable value. It’s a foundational KPI that aligns product, marketing, sales, and CX around long-term growth.
Customer-Centric Growth Strategy: High CLTV often correlates with excellent onboarding, product adoption, and ongoing support—your CX investment pays off.
Informs CAC Efficiency: When paired with CAC (Customer Acquisition Cost), it tells you if your acquisition model is sustainable and scalable.
Retention + Expansion Insight: CLTV increases when customers renew, upgrade, or expand—making it a proxy for CX-driven revenue.
Segmentation for Focus: It helps identify high-value customers, enabling tailored experiences and proactive success programs.
How to Measure CLTV
CLTV estimates how much revenue a customer generates over their entire relationship with your company. It’s critical for aligning acquisition cost, retention strategy, and customer segmentation.
There are two common ways to calculate CLTV in SaaS:
1. Simple CLTV Formula
This version is quick to apply when you have basic revenue and retention data:
CLTV = Average Revenue per Account × Average Customer Lifespan
Example:
If a customer pays $500/month and stays for 24 months:
CLTV = $500 × 24 = $12,000
2. Advanced (Margin-Adjusted) CLTV
To reflect profitability and churn, use this SaaS-optimized model:
CLTV = (ARPU × Gross Margin %) ÷ Customer Churn Rate
Example:
If ARPU is $200/month, gross margin is 80%, and churn rate is 5%:
CLTV = ($200 × 0.8) ÷ 0.05 = $3,200
Strategic Ways to Measure CLTV in SaaS
- By customer segment: Compare enterprise vs. SMB to understand long-term value by persona.
- By product tier: Higher plans often have longer retention and better margin profiles.
- By acquisition channel: Measure how CAC and CLTV align across inbound, outbound, and partner-led growth.
- By lifecycle stage: Assess how onboarding or expansion programs impact long-term value.
Understanding CLTV helps SaaS teams align pricing, marketing spend, and success coverage with the actual value of different customer types.
CLTV is where customer experience meets business outcomes. High lifetime value doesn’t happen by accident—it’s built through seamless onboarding, meaningful engagement, and consistent value delivery. For SaaS teams, it’s a signal to invest in customer relationships early—and double down when they show signs of growth.