Customer lifetime value (CLV or LTV) is one of the most-cited and most-mis-calculated metrics in B2B SaaS. The wrong calculation produces decisions that destroy company value. Here is the practical definition and how to calculate it correctly.
Customer lifetime value is the total revenue (or gross profit) a customer generates over their relationship with your business, before they churn.
Common simple formula: CLV = (Average revenue per customer per year × Gross margin) ÷ Annual churn rate
Common mistake: using revenue instead of gross profit, or using monthly churn but annual revenue (math error).
CAC payback decisions. If CLV is $50K and CAC is $15K, you can spend more to acquire. If CLV is $5K and CAC is $4K, you cannot.
Pricing decisions. Higher CLV supports higher acquisition costs and more sales-led motions.
Retention investment. The cheapest way to increase CLV is reducing churn. Higher CLV supports more investment in CS.
Expansion strategy. Companies with strong net revenue retention have CLV that grows over time — different math than static CLV.
Using revenue instead of gross profit. Revenue × CLV is meaningless if your COGS is 40%. Use gross profit.
Ignoring expansion. If your accounts grow 20% per year via upsell, your CLV is much higher than the static formula suggests.
Mixing time scales. Monthly revenue with annual churn produces nonsense numbers.
Using lifetime when meaning timeframe. True "lifetime" is hard to calculate. Usually safer to use 3-5 year LTV with stated assumptions.
CAC (Customer Acquisition Cost): What you spent to win the customer.
CAC payback: How many months until CAC is recovered. See CAC payback calculator.
NRR (Net Revenue Retention): How much existing-customer revenue grows over time. >100% means CLV grows.
LTV:CAC ratio: CLV divided by CAC. Healthy B2B SaaS targets 3:1 or higher.