What is LTV?
Customer Lifetime Value (LTV), sometimes written as CLV or CLTV, is the total revenue a business expects to earn from a single customer from the moment they sign up until they cancel.
For subscription businesses, LTV is determined by two things: how much customers pay (ARPU) and how long they stay (inverse of churn).
How to Calculate LTV
The standard formula for subscription businesses:
LTV = ARPU / Monthly Churn Rate
Where ARPU is Average Revenue Per User per month.
Example: Your average customer pays $49/month and you have 3% monthly churn.
LTV = $49 / 0.03 = $1,633
That means each customer, on average, will pay you $1,633 before they cancel.
The LTV:CAC Ratio — The Number That Actually Matters
LTV alone is meaningless. What matters is how it compares to your Customer Acquisition Cost (CAC) — what you spend to acquire each new customer.
The industry benchmark ratio is 3:1 or better:
| LTV:CAC | Health | |---------|--------| | < 1:1 | 🔴 Burning money on every customer | | 1:1 – 3:1 | 🟡 Barely profitable — tight margins | | 3:1 – 5:1 | 🟢 Healthy SaaS unit economics | | > 5:1 | 🟢 Either underinvesting in growth, or exceptional product |
For bootstrapped indie hackers with $0 paid acquisition, this ratio looks amazing on paper — but that just means you have room to invest in growth without destroying economics.
LTV Improvement Strategies
Since LTV = ARPU / Churn, there are only two levers:
1. Increase ARPU:
- Add a higher-tier plan
- Introduce usage-based pricing components
- Expand to team/multi-seat plans
- Add professional services or add-ons
2. Decrease Churn:
- Improve onboarding so customers actually get value
- Build habit-forming features (daily/weekly engagement loops)
- Add switching costs (integrations, data exports, API keys)
- Proactively reach out to low-engagement customers before they cancel
LTV for Lifetime Deal Buyers
If you've sold lifetime deals (LTDs), calculating LTV is different — you received the money upfront but there's no recurring component. LTD buyers tend to have higher support costs and lower engagement than subscribers, so many indie hackers calculate LTD LTV separately from subscription LTV.
Makerfolio tracks LTD revenue as one-time revenue, distinct from subscription MRR, so you can compare the economics of both customer types.
Common LTV Mistakes
- Using gross revenue instead of net: always use revenue after refunds and payment processor fees
- Not accounting for support costs: your LTV should ideally reflect profit, not just revenue
- Applying B2B benchmarks to B2C: consumer SaaS has inherently lower LTV — that's fine if CAC is also low