Business Term
LTV
Customer Lifetime Value
LTV
LTV estimates the value a customer generates over the relationship.
Formula
LTV = ARPU x gross margin / churn rate
Use when
Use it to judge CAC limits, pricing, and customer-segment priority.
Watch out
Recurring revenue, gross margin, retention duration, expansion
Updated: 06/27/2026Quality: ReviewedSources: 1
What it means
LTV combines customer value, gross margin, retention duration, and churn to guide how much acquisition investment can be justified.
How to calculate it
| Lens | Formula / treatment | When to use it |
|---|---|---|
| Simple formula | LTV = ARPU x gross margin / churn rate | A common SaaS approximation |
What counts / what does not
| Item | Treatment | Why it matters |
|---|---|---|
| Include | Recurring revenue, gross margin, retention duration, expansion | They define customer value |
| Exclude | Speculative future expansion, one-off outliers | They overstate value |
What moves the number
| Driver | Metric impact | What to watch |
|---|---|---|
| ARPU / gross margin | Customer-level profitability | Raises LTV |
| Churn rate | Drives retention duration | Strongly changes LTV |
When it helps
- Use it to judge CAC limits, pricing, and customer-segment priority.
How to use it
- Compare LTV and CAC by segment rather than only by average.
Decision cautions
- Early businesses with unstable churn can easily overstate LTV.
Example
Example: ARPU 10,000 yen, 80% gross margin, and 2% monthly churn gives simple LTV of 400,000 yen.
Compare with
| Metric | Difference | Why read together |
|---|---|---|
| CAC | Acquisition cost | LTV is the value after acquisition |
Common mistakes
- Only using average LTV can hide weak customer segments.
Frequently asked questions
What does LTV/CAC show?
It checks whether acquisition cost is justified by customer value.
Sources
| Sources | Kind | Link |
|---|---|---|
| YogoQ Core business foundation editorial baseline | editorial | — |