Quick definition: The total value a customer brings to a company across their entire lifetime. Should be at least 3× acquisition cost.
How it's calculated
Simple formula: LTV = Average purchase value × Annual purchase frequency × Years the customer stays.
Example: You make $20/month per customer; average customer stays 24 months → LTV = $20 × 24 = $480.
More refined for SaaS: LTV = ARPU / Churn rate. With $20/mo and 3% monthly churn → LTV = $20 / 0.03 = $667.
LTV:CAC ratio
CAC (Customer Acquisition Cost) is what you spend to acquire one customer.
LTV:CAC ratio is the core indicator of a healthy business:
- 1:1 — losing money
- 3:1 — healthy, sustainable
- 5:1 — excellent, can invest more in marketing
- Below 3:1 — either lower CAC or raise LTV
How to increase LTV
(1) Reduce churn — keep customers longer.
(2) Upsell — upgrade to higher-tier plans.
(3) Cross-sell — sell additional systems (selling inventory tracking to a customer who already has CRM on Onremo).
(4) Price optimization — adjust price as value grows.