What it means
LTV answers a simple question: across the entire relationship, how much profit will this customer generate? It's a forward-looking estimate, not an accounting fact, and it forces you to be honest about three things — what you actually charge, what it costs to deliver, and how long customers stay.
Use gross margin, not revenue. A subscription that grosses AED 1,000/month but costs AED 600 to deliver is worth a lot less than the same subscription delivered at 80% margin. And use a churn rate you can defend with data, not the rate you wish you had.
Worked example
A Gulf B2B SaaS bills AED 500/month per customer at a 70% gross margin. Monthly logo churn sits at 4%.
LTV = (500 × 0.70) ÷ 0.04 = AED 8,750 per customer.
If their CAC is AED 3,000, LTV:CAC ≈ 2.9 — right at the 3:1 threshold. Either churn has to come down or expansion revenue has to come up.
Why it matters
LTV is the second half of the unit-economics conversation. Without it, CAC is just a cost. With it, you can decide how much to spend per channel, which segments to double down on, and whether retention or acquisition deserves the next dollar.
Common mistakes
- Using revenue instead of gross profit — inflates LTV by 20–60%.
- Using "best month ever" churn instead of a trailing average.
- Calculating one LTV across very different segments (SMB vs enterprise).
- Counting expansion revenue you haven't actually earned yet.