Customer LTV Calculator
Compute Customer Lifetime Value (LTV / CLV) using ARPU × Gross Margin ÷ Churn, plus a cohort-weighted DCF variant. Free, no signup.
Customer LTV Calculator
Compute customer lifetime value two ways. The simple formula is ARPU × Gross Margin ÷ Monthly Churn — the standard SaaS-canon LTV. The cohort-weighted variant is a 60-month DCF that discounts future margin by your cost of capital — closer to what investors use for valuation.
How to Use the LTV Calculator
Compute ARPU (Average Revenue Per User)
Take total MRR (from the MRR Calculator) and divide by active paying customers. If MRR is USD 100,000 and you have 1,200 paying customers, ARPU is USD 83.33/month.
Pull gross margin from your P&L
Gross margin = (revenue − cost of revenue) ÷ revenue. For SaaS, cost of revenue is hosting + payment processing + customer support + cost of goods (for hardware-included SaaS). Use the figure from your own P&L — software margins are high because cost of revenue is mostly hosting and support, and hardware-included offerings run much lower.
Calculate monthly churn rate
Churn = customers lost this month ÷ customers at start of month. If you started the month with 1,000 customers and lost 35, monthly churn is 3.5%. Annual churn ≈ monthly × 12, but the compound math is (1 − (1 − monthly)^12) so 3.5% monthly ≈ 35% annual.
Compare LTV against CAC
The LTV:CAC ratio is the unit-economics benchmark. The common venture rule of thumb is 3:1 — three dollars of lifetime gross margin per dollar of acquisition cost; below 1:1 you lose money on every customer. Compute CAC separately with our CAC & Payback Period Calculator.
Customer Lifetime Value — The Number That Unlocks Acquisition Budget
Why LTV Is the SaaS Founder's Most-Used Number
Customer Lifetime Value (LTV, sometimes CLV) is the predicted gross profit a customer generates before they churn. It's the ceiling on what you can profitably spend to acquire that customer — if LTV is USD 1,500, spending USD 1,500 on acquisition breaks even and spending USD 500 produces a 3:1 LTV:CAC ratio (the venture-canon healthy benchmark). Gupta and Lehmann (Journal of Interactive Marketing, 2003) showed that with constant margin, retention rate and discount rate the lifetime value of a customer collapses to a one-line formula — margin × r ÷ (1 + i − r) — and the SaaS convention simply drops the discounting to get ARPU × margin ÷ churn.
The simple formula — ARPU × Gross Margin ÷ Monthly Churn — comes from a closed-form solution to a geometric series. If your monthly churn is 5%, the expected number of months a customer stays is 1 ÷ 5% = 20 months. Multiply by the monthly gross-margin contribution (ARPU × margin) and you get the lifetime gross-margin contribution: that's LTV. The formula assumes constant churn rate, constant ARPU, and constant gross margin over the customer's lifetime — useful approximations for back-of-envelope work, but they break down for businesses with strong cohort effects.
Cohort-Weighted LTV: Why the Simple Formula Overstates
The simple LTV formula treats a dollar of margin received 10 years from now as equivalent to a dollar today. In practice, future cash is worth less — both because of inflation and because future cash is more uncertain. The cohort-weighted LTV variant our tool computes is a discounted cash flow (DCF) over a 60-month horizon: for each month, the probability the customer is still around (= (1 − churn) ^ month), multiplied by the monthly gross-margin contribution, discounted back to today at your cost of capital.
For the default inputs — 3.5% monthly churn, 75% gross margin, USD 85 ARPU and a 10% annual discount rate — the simple formula gives LTV = USD 1,821; the cohort-weighted variant gives USD 1,377, about 24% lower. Two things pull it down: discounting, and stopping at 60 months, by which point about 12% of the cohort is still paying ((1 − 0.035)^60 ≈ 0.12) and the simple formula is still counting them. The gap widens as churn falls, because more of the simple formula's value sits beyond the horizon. For acquisition budgeting at venture-stage SaaS, the simple formula is the working number; for valuation discussions with investors, the cohort-weighted variant is closer to what gets used in financial modelling.
"At 3.5% monthly churn, the average customer stays 29 months. At 1.0% monthly churn (enterprise SaaS territory), the average customer stays 100 months — 8.3 years. Lower churn is multiplicatively more valuable than higher ARPU."
How LTV Drives Every Major Marketing Decision
The first downstream use of LTV is setting an acquisition budget ceiling. If LTV is USD 1,500 and you want a 3:1 LTV:CAC ratio, your CAC ceiling is USD 500 per customer. That ceiling drives bid caps in performance marketing (Google Ads, Meta Ads), the maximum first-year compensation for outbound SDRs, the affiliate commission cap, and the partnership economics. Without LTV, every acquisition channel runs on hope; with LTV, channels compete head-to-head on payback period.
The second use is product investment prioritisation. A retention feature that drops monthly churn from 4% to 3% increases simple LTV by a third (1/0.03 ÷ 1/0.04 = 1.33) — and with it the ceiling on what every acquisition channel may spend. Retention is structurally the highest-leverage investment in mature SaaS because it multiplies every other lever.
Average tenure is one divided by churn
The classic SaaS LTV formula ARPU × Margin ÷ Churn is a closed-form solution to a geometric series — it assumes constant churn, ARPU, and margin.
Average customer lifetime in months equals 1 ÷ monthly churn rate. 3.5% monthly churn → 29 months average tenure.
The venture rule of thumb for LTV:CAC is 3:1. Below 1:1 means you lose money on every customer; a very high ratio can mean you are under-investing in growth.
Enterprise SaaS typically posts 0.5-1.5% monthly churn; SMB SaaS sees 3-7%. The difference is multiplicative on LTV.
Gross margin, not contribution margin, is the convention: LTV is an annuity of gross-margin dollars, so sales and marketing costs belong in CAC, not here.
On the default inputs the cohort-weighted LTV (60-month DCF) is 24% lower than the simple formula — the gap is what infinite-horizon, undiscounted maths hides.
A 1 percentage point reduction in monthly churn can increase LTV by 30-50% — retention compounds.
The closed form comes from Gupta & Lehmann (2003): LTV = m × r ÷ (1 + i − r). Set the discount rate i to zero and it becomes ARPU × margin ÷ churn.
The discount rate is your cost of capital. Venture-backed companies use a higher one than listed software businesses because their cash flows are riskier — which lowers cohort LTV.
LTV:CAC ratio of 3:1 typically requires CAC payback under 12 months — a separate metric covered by our CAC Payback Calculator.
Frequently Asked Questions
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LTV = ARPU × Gross Margin ÷ Monthly Churn. Multiply average monthly revenue per customer by your gross margin percentage, then divide by monthly churn rate. The math comes from a geometric series: if a customer has a 3.5% chance of leaving each month, their expected lifetime is 1 ÷ 0.035 = 28.6 months. Times monthly gross-margin contribution gives total lifetime gross-margin contribution. It is the undiscounted special case of the customer-lifetime-value formula in Gupta & Lehmann (2003) and Berger & Nasr (1998).
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The simple formula treats USD 100 of margin in month 60 as worth the same as USD 100 today. The cohort-weighted variant applies your discount rate to future cash flows — reflecting that future money is worth less due to inflation and uncertainty. It also stops at 60 months, while the simple formula sums to infinity. On the default inputs the cohort LTV is 24% lower than the simple LTV. Investors use the cohort variant for valuation; founders use the simple variant for acquisition budgeting.
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The SaaS canon uses gross margin — revenue minus cost of revenue (hosting, payment fees, support, COGS). Contribution margin (which deducts variable sales + marketing per customer) is sometimes used for unit-economics analysis but is non-standard for LTV. The marketing-metrics literature defines lifetime value on margin, not revenue (Farris et al., Marketing Metrics, 2010). If you use contribution margin, label it explicitly to avoid confusion with industry comparables.
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The common venture rule of thumb is 3:1 — every dollar of CAC produces three dollars of LTV in gross margin. A much higher ratio often signals under-investment in growth (you could spend more on acquisition profitably). Below 1:1 means you lose money on every customer — fix this before scaling. The ratio is typically computed on a fully-loaded CAC basis: total sales + marketing spend ÷ net new customers (not paid acquisition only). Use our CAC Payback Calculator to compute the matching CAC number.
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Cohort LTV breaks customers into acquisition cohorts (by signup month or quarter) and tracks retention, ARPU, and margin contribution per cohort. This matters because product-market fit shifts over time — the cohort acquired in 2022 may behave very differently from the cohort acquired in 2026. Tools like ProfitWell Retain, Mixpanel, and Amplitude offer cohort views built-in. For a back-of-envelope, segment by acquisition channel (paid cohort vs organic cohort vs partner referral cohort) — paid cohorts usually churn faster than organic ones, and the gap is worth measuring for your own product.
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The simple formula uses fixed ARPU and doesn't model expansion. For SaaS with significant land-and-expand motion (typical enterprise SaaS with NRR above 110%), the formula understates true LTV. A common adjustment: multiply simple LTV by (NRR / 100) to bake in expected expansion. So if simple LTV is USD 1,500 and NRR is 115%, expansion-adjusted LTV is USD 1,725. This is informal — for rigorous expansion modelling, build a cohort spreadsheet that tracks revenue per cohort by month.
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Three levers, in order of typical impact: (1) reduce churn — a 1pp drop in monthly churn typically lifts LTV 30-50%; (2) raise ARPU — better pricing tiers, upsells, expansion revenue. Each 10% ARPU lift is a 10% LTV lift; (3) raise gross margin — typically incremental, since SaaS margins are mostly hosting + payment + support which scale with revenue. Retention is the highest-leverage investment for mature SaaS; pricing is second.
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Compute LTV on paying customers only. Free users contribute zero margin (and often negative gross margin once support costs are factored in), so including them would mathematically depress LTV. Track free-to-paid conversion rate as a separate metric, and use that to derive blended unit economics: blended LTV = paid LTV × (free→paid conversion rate) − cost of supporting free tier. Most SaaS founders track LTV strictly on the paid cohort to keep the number comparable to industry benchmarks.
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US SaaS generally commands higher ARPU than ASEAN SaaS for equivalent products — higher willingness to pay and a strong dollar both contribute — and Asian customers often resist a USD list price even when the local maths works. ASEAN founders therefore tend to run lower ARPU with similar gross margins (hosting is priced globally) and similar or somewhat higher churn, so LTV lands well below the US equivalent. Singapore and Australia are the exceptions — premium B2B markets where SaaS pricing often matches US benchmarks.
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For LTV reporting and investor decks, yes — always normalise to USD. For end-user pricing, segment by market: USD pricing in the US/UK/CA/AU/SG, local currency in markets where USD pricing causes friction (Indonesia, Philippines, Vietnam). Both Stripe and Chargebee support multi-currency pricing automatically. The LTV math is identical regardless of which currency the customer pays in, but reporting in USD makes you comparable to global SaaS benchmarks and keeps board-deck math clean. Most ASEAN-founded SaaS that target global markets (Carousell-era pattern) price USD-first and offer local currency only when conversion data justifies the operational complexity.
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Method & sources
How it computes
Simple LTV = monthly ARPU × gross margin ÷ monthly churn — the closed form of an infinite geometric series with constant churn and no discounting. Cohort-weighted LTV = Σ over 60 months of ARPU × margin × (1 − churn)^m ÷ (1 + d/12)^m — the same series, discounted at your annual rate d and cut off at five years.
What this tool implements
- Expected customer lifetime = 1 ÷ monthly churn (geometric retention)
- Gross margin, not contribution margin, as the margin basis; ARPU held constant (no expansion revenue)
- Cohort DCF: 60-month horizon, monthly compounding of the annual discount rate ÷ 12, month 0 undiscounted
Sources
- Gupta S, Lehmann DR. Customers as assets. Journal of Interactive Marketing 2003;17(1):9-24. doi:10.1002/dir.10045
- Berger PD, Nasr NI. Customer lifetime value: Marketing models and applications. Journal of Interactive Marketing 1998;12(1):17-30.
- Farris PW, Bendle NT, Pfeifer PE, Reibstein DJ. Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. 2nd ed. Upper Saddle River: Pearson; 2010. Chapter 5, customer profitability and lifetime value.
What can make this go out of date
- none at runtime — all inputs are the user's own metrics; the page quotes no industry benchmark
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