Lifetime Value (LTV) calculator

LTV — the revenue a customer is worth, done right

Lifetime value is the total net revenue you'll earn from an average customer before they churn. It's the ceiling on what you can spend to acquire them (via CAC) and still stay profitable. The math looks simple, but the inputs are where most founders go wrong — especially missing gross margin and conflating gross vs net churn.

The LTV formula

Gross-margin LTV = (ARPU × Gross Margin) / Net Churn

That denominator assumes constant monthly churn — 1/churn gives you the average customer lifetime in months. At 3% monthly churn, lifetime ≈ 33 months. At 1% monthly, lifetime ≈ 100 months (8+ years). Small churn differences lead to enormous LTV differences, which is why churn reduction is the single biggest lever on LTV.

Why gross margin matters

If you have 80% gross margin, only 80 cents of every dollar of revenue flows to covering CAC and generating profit. The other 20 cents pays for infrastructure (AWS, payments, support headcount, CS). Revenue LTV ignores this and overstates value.

Typical gross margins:

• SaaS: 70–85% (mostly infrastructure + payment processing + some support)
• Marketplaces: 20–40% (higher fulfillment + fraud + chargebacks)
• E-commerce: 30–60% (physical goods + fulfillment + returns)
• Media / ad networks: 50–70% (content + traffic acquisition)
• Services-heavy SaaS: 40–60% (implementation + training + concierge)

Gross vs net churn

Gross churn = MRR lost from departing customers, as % of starting MRR. Net churn = gross churn − expansion MRR from existing customers. The LTV formula uses net churn because expansion offsets some of the lost revenue.

Best-in-class SaaS companies have negative net churn — expansion exceeds churn, so the same cohort of customers grows in aggregate revenue over time even as some leave. In those cases, the 1/net-churn formula breaks (denominator is 0 or negative) and you need a cohort-based model instead.

Why constant-churn LTV is too simple

The formula 1/churn assumes churn is the same in month 1 as month 60 — it isn't. Churn typically decays as cohorts age:

• Month 1–3: Highest churn. People who never activated, onboarding-failure, buyer's remorse.
• Month 4–12: Moderate churn. Failed ROI, team changes, budget cuts.
• Month 12+: Low churn. Surviving customers are deeply embedded and unlikely to leave.

For products with strong retention (engaged, sticky), the simple LTV formula understates. For high-churn products, it overstates. For a more accurate cut, compute LTV from actual cohort retention curves — see our churn + cohort retention calculator.

LTV:CAC — the real test

LTV in isolation means nothing. Pair it with CAC:

• LTV:CAC < 1: Burning money on every customer. Unit economics broken.
• LTV:CAC = 1–3: Profitable but thin. Every dollar of acquisition generates <3x.
• LTV:CAC = 3–5: Healthy. This is the standard target.
• LTV:CAC > 5: Either exceptional product-market fit or under-investing in acquisition. Sometimes the right play is to lean into CAC harder.

How to grow LTV

Three levers, in order of impact:

1. Reduce churn: The single biggest lever. Going from 3% to 2% monthly churn raises LTV by 50%. Tactics: better onboarding, usage analytics to catch at-risk accounts, customer success outreach, sticky integrations.
2. Drive expansion: Upsells, cross-sells, seat growth. Best when your product has a natural usage metric that grows over time (users, storage, API calls).
3. Raise ARPU: Price increases on renewal, new tiers, usage-based billing. Typically 5–10% annual price increases at renewal are accepted in SaaS if value is real.

Stripe's 2023 analysis: of SaaS companies that 10x'd their LTV over 5 years, 70% did it through churn reduction and expansion, only 30% through new-customer ARPU increases.