The most commonly used basic formula in SaaS and subscription models:
CLV = ARPA × average customer lifespan
For a CLV expressed in margin (more conservative and accurate), multiply by the margin rate:
CLV = ARPA × lifespan × margin rate
Estimating lifespan via churn: if the monthly churn rate is 2%, the average lifespan is approximately 1 / 0.02 = 50 months. The lower the churn, the longer the lifespan — and thus the higher the CLV.
Example for a SaaS SME:
These figures are rough estimates: the formula remains a useful approximation for management, not an exact accounting figure.
CLV only makes sense in relation to CAC (Customer Acquisition Cost), the cost of acquiring a customer: marketing and sales expenses divided by the number of customers acquired.
The ratio between the two, the LTV / CAC ratio, indicates whether the model is viable:
The threshold of 3 is an indicative convention, not a rule: it varies by industry, sales cycle length and margin level. A high-margin, low-churn business may settle for a lower ratio, while a highly competitive model may aim higher.
Two levers to improve the ratio: increase CLV (reduce churn, upsell and cross-sell) or lower CAC (more efficient acquisition channels, better conversion rates). Tracking CLV, CAC, ARR and MRR together provides an honest view of an SME’s subscription-based stability.
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Essai gratuit 14 jours What the Orizen CRM module costsThe basic formula is CLV = ARPA × average customer lifespan, where ARPA is the average revenue per customer over a period. For a more conservative version, multiply by the margin rate: CLV = ARPA × lifespan × margin. The lifespan is often derived from the churn rate (lifespan ≈ 1 / churn rate). The result remains a management estimate, not an exact accounting figure.
An LTV / CAC ratio greater than 3 is often cited as a benchmark for a healthy model: a customer generates at least three times their acquisition cost. This threshold is indicative and varies by industry, margin and sales cycle length. Below 1, the model loses money; between 1 and 3, it is profitable but leaves little room for investment in growth.
CLV and LTV mean the same thing: customer lifetime value, i.e. what a customer brings in over their entire relationship with the company. ARR (Annual Recurring Revenue), on the other hand, measures the annual recurring revenue from all customers at a given point in time. CLV is calculated per customer over their lifetime; ARR captures the company’s overall recurring revenue over twelve months.