How do I calculate customer lifetime value?

Customer Lifetime Value (CLV) predicts total revenue a customer generates over their relationship with your business. It drives decisions on acquisition spend, retention investment, and pricing. Simple formula: CLV = Average Revenue Per User (ARPU) × Average Customer Lifespan. Example: $100/month × 24 months = $2,400 CLV. More accurate formula: CLV = (Average Revenue Per Month × Gross Margin %) / Monthly Churn Rate. Example: ($100 × 70%) / 5% = $1,400. This accounts for costs and churn rate. SaaS-specific: CLV = (ARPU × Gross Margin) / Revenue Churn Rate. With expansion revenue: include upsells and cross-sells in ARPU. The LTV:CAC ratio is the key metric: how much revenue a customer generates vs how much you spend to acquire them. Target: 3:1 or higher. Below 1:1 means you lose money on every customer. Between 1:1 and 3:1 means you are growing but not profitably enough. Above 5:1 usually means you are underinvesting in growth. Improve CLV by: reducing churn (retention is 5× cheaper than acquisition), increasing ARPU (upselling, usage-based pricing), expanding usage (more features, more users per account), and extending customer lifespan (annual contracts, sticky integrations).