LTV vs ARPU — what's the difference?
ARPU and LTV are linked by retention and gross margin. Conflating them leads to overpaying for acquisition or underestimating runway — both fatal in early-stage SaaS.
ARPU (Average Revenue Per User)
Monthly recurring revenue divided by the number of active customers in that month.
When to use: Tracking pricing changes, comparing plan tiers, or sizing per-seat economics.
LTV (Lifetime Value)
Total gross-margin-adjusted revenue you expect from a customer over their entire lifecycle.
When to use: Setting CAC budgets, modeling payback, or evaluating long-term unit economics.
Bottom line
ARPU is the input; LTV is the output, multiplied by retention and gross margin. A high ARPU with 8% monthly churn is worth less than half-the-ARPU with 1% churn.
Frequently asked
Should LTV use gross or net revenue?
Gross-margin-adjusted is the only honest version. Top-line LTV makes everyone look healthier than they are.
Is annualized ARPU the same as ARPA?
ARPA (Average Revenue Per Account) is the same idea but measured per account/team rather than per seat. Useful when one account has many seats.