LTV Calculator
Calculate your Customer Lifetime Value to understand the total revenue each customer generates over their relationship with your business. Optionally add CAC for LTV:CAC ratio analysis.
Average revenue per user per month
Revenue minus cost of goods sold
% of customers lost per month
To calculate LTV:CAC ratio
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Understanding Customer Lifetime Value
Customer Lifetime Value is arguably the most important metric for subscription and recurring-revenue businesses. It answers the fundamental question: how much is each customer worth to your business over time? This drives decisions about acquisition spending, retention investment, and overall business strategy.
The LTV Formula
LTV = (Average Revenue Per User × Gross Margin) / Monthly Churn Rate. This formula assumes steady-state ARPU and churn. In practice, ARPU may grow through upsells and churn may decrease as customers mature. More sophisticated models account for these dynamics, but the basic formula provides a solid baseline.
Why Churn Dominates LTV
Small changes in churn have outsized effects on LTV because customer lifespan = 1 / churn rate. Cutting churn from 5% to 2.5% doubles your average customer lifespan and roughly doubles LTV. This is why the best SaaS companies obsess over retention — it is the single biggest lever on long-term business value.
Using LTV for Growth Decisions
Your LTV sets the upper bound on what you can spend to acquire a customer (CAC). If LTV is $1,000, you know you can profitably spend up to ~$333 per customer (3:1 ratio) while maintaining healthy economics. This framework turns growth from guesswork into a math problem.
Frequently Asked Questions
- What is Customer Lifetime Value (LTV)?
- Customer Lifetime Value (LTV or CLV) is the total revenue a business can expect from a single customer account over their entire relationship. It factors in average revenue per user, gross margin, and how long customers typically stay. LTV helps you determine how much you can afford to spend on acquiring and retaining customers.
- How do you calculate LTV?
- The basic formula is LTV = (ARPU × Gross Margin) / Monthly Churn Rate. For example, if your monthly ARPU is $100, gross margin is 70%, and monthly churn is 5%, then LTV = ($100 × 0.70) / 0.05 = $1,400. This assumes constant ARPU and churn, which is a simplification but provides a useful baseline.
- What is a good LTV:CAC ratio?
- The widely accepted benchmark is 3:1 — your LTV should be at least 3x your CAC. Below 1:1 means you lose money on every customer. 1-3x means you are profitable but may not have enough margin for growth. Above 5x might mean you are underinvesting in growth and could acquire customers more aggressively.
- How does churn affect LTV?
- Churn has a massive impact on LTV. Average customer lifespan = 1 / churn rate. So 5% monthly churn means 20-month average lifespan, while 2% churn means 50 months — 2.5x longer. Even small improvements in churn dramatically increase LTV. Reducing churn from 5% to 4% increases LTV by 25%.
- What is the difference between LTV and CLV?
- LTV (Lifetime Value) and CLV (Customer Lifetime Value) are the same metric — different abbreviations for the same concept. Some companies use CLTV as well. All refer to the total expected revenue from a customer over the entire relationship, adjusted for gross margin.