Customer Lifetime Value (LTV)
Customer Lifetime Value (LTV or CLV) estimates the total revenue a business will earn from a single customer over the entire duration of their relationship. It's the counterpart to CAC — together they define unit economics.
Formula
LTV = ARPU × Gross Margin × Average Customer LifespanOr using churn:
LTV = (ARPU × Gross Margin) / Monthly Churn RateExample
- ARPU: $100/month
- Gross margin: 85%
- Monthly churn: 3%
LTV = ($100 × 0.85) / 0.03 = $2,833The LTV:CAC Ratio
The golden ratio of SaaS economics:
| LTV:CAC Ratio | Assessment |
|---|---|
| < 1:1 | Losing money on every customer |
| 1:1 – 3:1 | Unprofitable or breakeven |
| 3:1 – 5:1 | Healthy and efficient |
| 5:1+ | Excellent, or under-investing in growth |
The sweet spot is 3:1 to 5:1. Below 3:1, you're spending too much to acquire customers. Above 5:1, you might be under-investing in growth and leaving money on the table.
LTV in AI-Run Companies
AI-run companies bend the LTV:CAC ratio in both directions:
- Higher LTV — AI continuously improves the product, reducing churn and extending customer lifespan
- Lower CAC — AI handles marketing and acquisition at a fraction of the human cost
A traditional SaaS with 3:1 LTV:CAC might become 10:1 or higher as an AI-run company. This is the economic engine that makes zero-employee businesses so valuable.
On EvolC, we surface LTV:CAC ratios when available — it's one of the strongest signals of a well-run AI business.