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Frequently Asked Questions: Lifetime Value (LTV)

What's the difference between LTV and CLTV (Customer Lifetime Value)?

LTV (Lifetime Value) and CLTV (Customer Lifetime Value) essentially refer to the same concept: the total revenue you can expect from a customer over their relationship with your business. This concept can also be extended to "consumer lifetime value" and "client lifetime value".

What is ARPA or ARPU?

Average Revenue Per Account (ARPA), (often used interchangeably with ARPU, Average Revenue Per User) is a measure of the average monthly or annual revenue generated by each customer account

What is Gross Margin?

Gross Margin in SaaS is the percentage of revenue that remains after subtracting the cost of goods sold (COGS), which includes costs directly related to service delivery. It's crucial for understanding the actual profit generated per customer. The formula for gross margin:

Gross Margin = ((Total Revenue - Total Costs) / Total Revenue) x 100
Why is LTV Important?

LTV is vital as it helps in understanding customer value and informs strategies to enhance customer experience, optimize pricing models, and improve retention rates. A high LTV indicates a healthy, sustainable business model.