Customer Lifetime Value (LTV, also called CLV) is the total gross profit you expect to earn from a single customer over the entire relationship before they churn. It is the single most important number in a subscription business: LTV tells you how much you can afford to spend to acquire a new customer, whether your growth is healthy, and whether your product actually retains people.
This calculator uses the standard SaaS LTV model popularized by Bain & Company and Scale Venture Partners. You enter your average revenue per user, your gross margin, your monthly churn, and your customer acquisition cost, and the tool returns the lifetime value, the LTV:CAC ratio, the CAC payback period, and a projected cohort retention curve.
How to Use
- Enter your Average Revenue Per User (ARPU). Take your last month's recurring revenue and divide it by the number of paying customers. If you mix monthly and annual plans, convert annual plans to a monthly equivalent first.
- Set your Gross Margin. For most SaaS businesses this is 70%–85% after hosting, payment processing, and direct support costs. Do not use your net margin; LTV is built on gross profit, not net profit.
- Type your Monthly Churn Rate. This is the share of customers who cancel in a typical month. If you only track annual churn, divide roughly by 12 — but monthly churn is the more accurate input for a subscription model.
- Add your Customer Acquisition Cost (CAC). Divide last month's total sales and marketing spend (salaries, ads, tools, agency fees) by the number of new customers signed in that same window.
- Read the result card. The highlighted rows are your LTV, your LTV:CAC ratio, and your CAC payback period; below them you will see the projected retention curve for a cohort over the first year.
The SaaS LTV Formula
The model this calculator uses is:
LTV = ARPU × Gross Margin × (1 ÷ Monthly Churn)
Three ideas are bundled inside that one line:
- ARPU × Gross Margin is the gross profit you keep each month from one customer. If a customer pays $100 per month and your gross margin is 80%, you keep $80 per month in gross profit.
- 1 ÷ Monthly Churn is the average customer lifespan in months. A 5% monthly churn means the average subscriber stays for 1 ÷ 0.05 = 20 months. A 2% churn means 50 months.
- Multiplying monthly gross profit by the lifespan gives the total gross profit you expect from that customer before they leave.
The same engine also derives three companion metrics:
- LTV:CAC Ratio = LTV ÷ CAC. The widely cited benchmark is 3:1 to 5:1. Below 1:1 you lose money on every customer; above 5:1 you may be under-investing in growth.
- CAC Payback Period = CAC ÷ (ARPU × Gross Margin). This is how many months of gross profit it takes to earn back your acquisition cost. SaaS best practice is under 12 months.
- Cohort Retention Curve = (1 − Monthly Churn) raised to the power of the month number. It shows what share of your original cohort is still paying at month 1, 3, 6, and 12.
Because the formula uses churn in the denominator, small changes in churn produce outsized changes in LTV. Cutting monthly churn from 5% to 3% raises the average lifespan from 20 months to 33 months — a 67% jump in LTV — even though the input number barely moved. That is why retention is usually a better lever than price for mature SaaS products.
Examples
Example 1 — Standard SaaS subscription. A B2C app charges $100 per month, runs at an 80% gross margin, and loses 5% of customers each month, paying $500 to acquire each one. The average lifespan is 20 months, monthly gross profit per customer is $80, so LTV is $1,600. The LTV:CAC ratio is 3.2:1 (healthy), and payback takes 6.25 months. Projected retention is 95% at month 1, 86% at month 3, 74% at month 6, and 54% at month 12.
Example 2 — High-retention enterprise product. A B2B tool charges $99 per seat per month at an 85% gross margin with just 2% monthly churn, but spends $300 to close each customer. The lifespan stretches to 50 months, monthly gross profit is $84.15, and LTV climbs to $4,207.50. The LTV:CAC ratio is a very strong 14:1, and the company recovers its acquisition cost in only 3.57 months. The 12-month cohort still retains 78% of customers.
Example 3 — An unhealthy acquisition spend. A growth-stage startup pays $1,000,000 in sales and marketing to land enterprise customers worth $500 per month at an 80% margin with 3% monthly churn. Each customer is worth about $13,333, but the acquisition cost is so high that the LTV:CAC ratio collapses to roughly 0.01:1 and payback stretches to 2,500 months. This is the kind of result that signals the go-to-market motion needs a complete rethink before scaling.
FAQ
What is a good LTV:CAC ratio?
The classic benchmark is 3:1 to 5:1. A ratio below 1:1 means you spend more to acquire a customer than you will ever earn back, which is unsustainable. A ratio far above 5:1 usually means you are not spending aggressively enough on sales and marketing and are leaving growth on the table.
How is LTV different from lifetime revenue?
Lifetime revenue is the full amount a customer pays you before leaving. LTV uses gross profit instead — the revenue left after direct costs like hosting, support, and payment processing. Using revenue directly would overstate the value of customers at low-margin businesses.
Why does churn have such a huge effect on LTV?
Because LTV divides by churn. Cutting monthly churn in half doubles the average customer lifespan and therefore roughly doubles LTV. Going from 5% monthly churn to 2% moves the lifespan from 20 months to 50 months, a 150% increase, without raising prices or adding a single feature.
What is a good CAC payback period?
For most SaaS businesses, payback under 12 months is healthy, and under 6 months is excellent. Venture-backed B2B SaaS companies often track a target of 12 months or less. If payback exceeds 24 months, your cash conversion cycle is under pressure even if the LTV:CAC ratio looks fine.
Should I use monthly or annual churn in the formula?
Use monthly churn when you have it, because the formula outputs lifespan in months and is calibrated to subscription behavior. If you only know annual churn, divide it by 12 to approximate the monthly rate, but treat the result as a rough estimate — annualized churn hides seasonal spikes that monthly churn reveals.
Does this calculator work for e-commerce or one-time purchases?
Not directly. This is the subscription SaaS model, where churn is well-defined and recurring revenue compounds. For transactional e-commerce, LTV is usually computed as average order value × purchase frequency × gross margin × expected customer lifetime, which requires different inputs.
Disclaimer
This LTV calculator is provided for informational purposes only and does not constitute financial, accounting, or investment advice. Results are estimates based on the simple SaaS LTV formula and the inputs you enter; they do not account for discount rates, expansion revenue, seasonality, refund rates, cohort mix, or changes in pricing over time. Actual lifetime value depends on retention curves, upsell, support costs, and market conditions that this model does not capture. Always validate the output against your own cohort data before making spending or pricing decisions.