LTV (Lifetime Value)

Lifetime Value (LTV or Customer Lifetime Value — CLV) is the total net revenue a company expects to generate from a customer throughout their relationship. For SaaS companies: LTV = ARPA (Average Revenue Per Account) / Churn Rate, or more precisely as a net margin contribution discounted over the expected customer lifetime. It is the fundamental measure of unit economics — paired with CAC (Customer Acquisition Cost) in the LTV/CAC ratio, which is the primary SaaS business model quality indicator. A healthy LTV/CAC ratio (>3x) confirms that customer acquisition investment generates returns well above its cost.

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Example: a Swiss SaaS company has ARPA of CHF 12,000/year and annual churn of 7%. LTV = CHF 12,000 / 7% = CHF 171,000 (undiscounted). With a 70% gross margin, net contribution LTV = CHF 120,000. With CAC of CHF 15,000, the LTV/CAC ratio is 8.0x — confirming highly efficient customer acquisition. At a payback period of 15 months (CAC / monthly contribution), this SaaS business demonstrates superior unit economics supporting an ARR multiple at the upper end of the comparable range.

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Hectelion analyses LTV/CAC ratios and cohort behaviour in SaaS valuations and due diligence to assess unit economics sustainability and justify valuation multiples.