LTV (Lifetime Value)
Definition
Lifetime value, the total revenue a client generates over the entire duration of their relationship with the business. The basis for calculating acquisition and retention profitability.
Detailed explanation
LTV is the most underused KPI among freelancers and small businesses. Simple calculation: average order value x purchase frequency x client lifetime. SaaS calculation: ARPU (Average Revenue Per User) x average subscription duration x gross margin. Example: a SaaS at 30 EUR per month with an average retention of 22 months and 80% gross margin = 528 EUR LTV. LTV/CAC ratio above 3: healthy, scalable acquisition. Below 1: destructive acquisition. For a freelancer selling one-off services plus maintenance: 3-year LTV = initial project + 36 x monthly fee + potential upsells.
Related terms
CAC (Customer Acquisition Cost)
Customer acquisition cost, the total amount invested in marketing and sales divided by the number of clients acquired over the same perio...
Digital marketingMRR (Monthly Recurring Revenue)
Monthly recurring revenue, the predictable revenue over 30 days from subscriptions or recurring contracts. The main metric for SaaS busin...
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