If you’re running a SaaS or subscription business, one of the most important questions you’ll face is: how much is each customer really worth over time? That’s what Customer Lifetime Value (CLV) measures.
Calculated correctly, CLV tells you whether you’re spending the right amount on marketing, how sustainable your growth is, and what investors see when they evaluate your business.
What Is Customer Lifetime Value (CLV)?
Customer Lifetime Value is the total revenue a customer is expected to generate during their entire relationship with your business. In SaaS, it’s not enough to just multiply revenue by average lifespan—you also need to adjust for churn and gross margin.
👉 Formula for SaaS CLV:
CLV = (ARPU × Gross Margin %) ÷ Churn Rate
- ARPU = Average Revenue Per User
- Gross Margin % = Profitability after service costs
- Churn Rate = Percentage of customers leaving each month
You can skip the manual math and try our Customer Lifetime Value Calculator to run your own numbers.
Why Measuring CLV Effectively Matters
Measuring CLV correctly is more than an accounting exercise—it’s a growth strategy.
- Helps control CAC: If your CLV is $3,000 and your CAC is $1,000, you’ve got a healthy 3:1 LTV:CAC ratio.
- Guides pricing decisions: Knowing your CLV ensures you’re not underpricing high-value customers.
- Improves retention focus: Even a small drop in churn rate can dramatically boost CLV.
- Attracts investors: Venture capitalists use CLV as a signal of long-term scalability.
Pairing CLV with Customer Acquisition Cost (CAC) gives you one of the most reliable measures of SaaS efficiency.
Step-by-Step: How to Measure CLV in Practice
- Calculate ARPU
- Total monthly recurring revenue ÷ active customers.
- Adjust for Gross Margin
- If you spend $20 serving a $100 customer, your margin is 80%.
- Determine Monthly Churn
- Example: Losing 5 out of 100 customers = 5% churn.
- Apply the Formula
- ($100 × 0.8) ÷ 0.05 = $1,600 CLV.
- Interpret the Result
- If CAC is $400, you’ve got a 4:1 ratio—a strong signal that you can scale.
CLV Benchmarks and Payback Periods
For SaaS businesses, healthy benchmarks vary:
| SaaS Type | Healthy CLV:CAC Range |
|---|---|
| B2B SaaS | 3:1 – 4:1 |
| B2C SaaS | 2.5:1 – 3:1 |
| Enterprise SaaS | 4:1 – 5:1 |
Another key measure is the CAC payback period—how long it takes to recover acquisition costs. A payback under 12 months is ideal. You can model these scenarios in our SaaS ROI Calculator.
Common Mistakes in Measuring CLV
- Ignoring gross margin (overstates true value).
- Using too little data (early-stage estimates are unreliable).
- Not segmenting customers (SMBs vs enterprise can vary dramatically).
- Forgetting upsells and cross-sells that increase value.
- Skipping expansion revenue when customers upgrade.
Advanced Ways to Measure CLV
If you have enough data, you can go beyond the simple formula:
- Predictive CLV models → Use historical behavior to forecast future revenue.
- Net Present Value (NPV) adjusted CLV → Discount future cash flows for accuracy.
- Cohort-based CLV → Segment by signup month, channel, or product tier to see differences.
These approaches help mature SaaS businesses forecast more precisely.
How to Increase Your CLV
You don’t just measure CLV—you improve it.
- Reduce churn through better onboarding and proactive success teams.
- Increase ARPU with upsells, cross-sells, and pricing optimization.
- Improve retention with loyalty programs and customer engagement.
- Target higher-value segments that have longer lifespans.
Our Customer Retention Value Calculator shows how small retention improvements can dramatically boost lifetime value.
FAQs on Measuring CLV
1. What is a good CLV for SaaS?
It depends on your business model, but many SaaS companies aim for a CLV:CAC ratio of around 3:1.
2. How often should I update CLV?
At least quarterly—more often if you’re scaling quickly.
3. Should I include churn in CLV calculations?
Yes. Without churn, your numbers will be inflated and misleading.
4. How is CLV different from ARPU?
ARPU is revenue per user per month; CLV is revenue across the entire relationship.
5. What’s the link between CLV and company valuation?
A high CLV signals strong revenue predictability, which boosts investor confidence. You can check this with our SaaS Valuation Calculator.