Calculation of LTV
Discover how Fincome calculates LTV (customer lifetime value). Use this indicator to estimate the average financial value generated by a customer over their relationship with your company.
1. What is LTV?
LTV, or Lifetime Value, refers to the total expected value of a customer over the entire duration of their relationship with the company. It represents what a customer brings in revenue (often gross) during their “life” in the active base.
It is a summary metric, often used in the following contexts:
Evaluating the profitability of a channel or customer segment
Monitoring the overall performance of a business model (notably in SaaS or e-commerce)
Calculating the LTV/CAC ratio, a key indicator to judge whether the acquisition cost is sustainable
2. How to calculate LTV?
Where:
ARPA (Average Revenue Per Account): Average revenue per customer over a given period. Key metric to measure the impact of a pricing change
Churn rate: Loss of MRR related to the cancellation of a customer's last active subscription (see Churn Rate).
3. Practical example: calculating LTV in SaaS
Let’s take an example to illustrate the calculation of LTV for a SaaS company:
50 customers purchased an annual subscription at €120 each.
100 customers chose the basic monthly plan at €12 per month.
60 customers subscribed to the premium plan at €18 per month.
The churn rate over the last six months was 3%.
To calculate LTV, we first determine the monthly recurring revenue (MRR), then the average revenue per account (ARPA):
MRR = ((120/12) * 50) + (100 * 12) + (60 * 18) = €2,780
Total number of subscribers = 50 + 100 + 60 = 210;
ARPA = €2,780 / 210 = €13.24;
LTV = ARPA / churn rate = 13.24 / 3% = €441.33.
Thus, the average customer lifetime value for this SaaS company is €441.33.
4. The importance of the LTV/CAC ratio
The LTV/CAC ratio (Lifetime Value / Customer Acquisition Cost) is a key strategic indicator in SaaS to assess the profitability of your acquisition model. It relates:
LTV: the average value of a customer over their entire lifetime (average revenue generated before churn),
CAC: the average cost to acquire a new customer, including marketing, sales, tools, and human resources expenses associated with acquisition.
LTV/CAC RATIO
INTERPRETATION
< 1
The customer brings in less than they cost → non-viable model.
≈ 1
Acquisition at breakeven, but without margin → little sustainability.
2 to 3
Profitable model, but margin still limited.
> 3
Excellent: each customer brings in 3× or more their acquisition cost.
5. Best analysis practices (in Fincome)
Segment LTV (by plan, country, industry, acquisition channel) to identify where to invest and where to optimize (pricing, packaging, onboarding).
Monitor the smoothing window: with strong seasonality, a longer horizon stabilizes the indicator; conversely, a shorter horizon detects a turning point faster. (E.g.: companies with usage peaks, seasonal reactivations.)
Interpret LTV alongside GRR/NRR and churn for a complete view of retention and expansion.
6. FAQ
→ LTV, CLV, CLTV: difference? No difference in common usage: these three terms are synonymous with Customer Lifetime Value. Fincome terminology uses LTV for consistency.
→ Why can LTV vary from month to month? Variations come from:
changes inARPA (e.g. upsell, discounts),
the evolution of the average churn (6-month rolling window),
or effects of seasonality (usage peaks, slow periods).
💡 Smoothing over 12 months can reduce these fluctuations in your reports.
→ Does Fincome LTV include gross margin? No, by default. The standard Fincome formula is: LTV = ARPA / churn (in revenue). You can however calculate a post-margin LTV manually: Post-margin LTV = (ARPA × gross margin) / churn, for a “post-direct-costs” view.
→ Which churn is used in LTV? The value churn (MRR lost due to the cancellation of the last active subscription), smoothed over 6 months. An option to vary to 3 or 12 months will soon be available to better adapt to your business model.
→ Why does my Fincome LTV differ from an internal Excel calculation? Several possible reasons:
your Excel uses logo churn (lost customers) and not value churn (MRR lost),
the smoothing horizon differs (6 months vs 12 months),
theARPA is not calculated over the same scope (discounts, excluded customers, etc.).
→ What to do if my LTV/CAC is low? Act on the three main levers :
Increase ARPA : upsell, cross-sell, pricing optimization;
Reduce churn : onboarding, activation, proactive customer success;
Improve acquisition targeting : prioritize segments with better payback.
These analyses are available in Fincome via analytic segmentation.
→ Edge case: 6-month average churn ≈ 0% Mathematically, LTV tends toward infinity and becomes hard to interpret. In that case, use a longer horizon (12 months) and/or complement the reading with GRR / NRR.
Need to go further?
Combine LTV by segment and CAC by segment to optimize your acquisition budgets. Track the LTV/CAC ratio over time to measure the concrete impact of your actions (pricing, packaging, Customer Success).
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