Lifetime Value
Lifetime value (LTV) is the total revenue a customer brings in over the whole relationship, from the first payment to the last.
Why does lifetime value decide what you can spend on ads?
Because it caps what a customer is worth to you. If a client pays you $15,000 over the relationship, you can afford a much higher cost per booked call than someone whose client pays $500 once. The businesses I work best with have at least $15,000 in lifetime value per client, because that leaves room to buy calls on cold traffic and still make money.
How long does it take to earn back acquisition cost?
It depends on how the money arrives. One SaaS example I use:
- Selling the onboarding as a $5,000 done-for-you service collects that money on day one.
- Making the same $5,000 back through a $100 a month plan alone would take about 50 months of the customer staying.
Same customer, same product. The first structure pays for its own acquisition immediately; the second bets everything on retention.
How does LTV change how you read ROAS?
For recurring revenue, first-month return on ad spend undercounts. A high-ticket SaaS I worked with added about $95,000 in monthly recurring revenue against $35,627 in ad spend, roughly 2.7x in the first month, and that revenue repeats every month the customers stay. Judged on first payment, the account looks average. Judged on lifetime value, it's the best month the company ever had.
FAQ
What's a good LTV to CAC ratio?
There's no universal number, but the safer structure is one where the first payment covers acquisition and lifetime value is profit, rather than one that only breaks even after months of retention.