Customer Lifetime Value Calculator
Calculate customer lifetime value (LTV/CLV) and optimize your SaaS unit economics. LTV is one of the most important metrics in subscription businesses—it determines how much you can afford to spend acquiring customers and directly impacts company valuation. This calculator helps you measure LTV and understand its relationship to other key metrics.
Understanding Customer Lifetime Value
LTV represents the total revenue (or profit) you can expect from a customer over the entire relationship. It's the foundation of sustainable unit economics: if customers are worth more than they cost to acquire and serve, you have a viable business. If not, you're essentially paying customers to use your product.
The power of LTV lies in its forward-looking nature. By projecting the full value of a customer relationship, LTV helps justify upfront customer acquisition costs that would otherwise seem expensive.
LTV Calculation Formulas
Simple LTV (Revenue-based)
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LTV = ARPU / Monthly Churn Rate
Example: $100 ARPU ÷ 0.025 (2.5% churn) = $4,000 LTV
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LTV with Gross Margin (Profit-based)
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LTV = (ARPU × Gross Margin %) / Monthly Churn Rate
Example: ($100 × 80%) ÷ 0.025 = $3,200 LTV
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LTV with Discount Rate (Present Value)
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LTV = (ARPU × Gross Margin) / (Monthly Churn + Discount Rate)
Example: ($100 × 80%) ÷ (0.025 + 0.00833) = $2,400 LTV
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The discount rate (typically 1% monthly / 10% annual) accounts for the time value of money—dollars today are worth more than dollars years from now.
LTV:CAC Ratio Benchmarks
| LTV:CAC Ratio | Business Health | Action Required |
|---|---|---|
| < 1:1 | Critical | Losing money on every customer |
| 1:1 - 2:1 | Unhealthy | Low margins, limited growth funds |
| 3:1 | Healthy | Sustainable unit economics |
| 4:1 - 5:1 | Strong | Room for growth investment |
| > 5:1 | Very Strong | May be underinvesting in growth |
Investors typically look for 3:1+ LTV:CAC ratios. However, context matters—a 5:1 ratio might indicate you could grow faster by spending more on acquisition.LTV by Customer Segment
Breaking down LTV by segment reveals where to focus:
| Segment | ARPU | Churn | LTV | LTV:CAC |
|---|---|---|---|---|
| Enterprise | $5,000 | 0.5% | $1,000,000 | 10:1 |
| Mid-Market | $500 | 2% | $25,000 | 4:1 |
| SMB | $50 | 5% | $1,000 | 2:1 |
| Freemium → Paid | $25 | 8% | $313 | 1:1 |
This analysis might suggest focusing acquisition efforts on mid-market while improving SMB retention or conversion rates.CAC Payback Period
How long until a customer becomes profitable:
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Payback Period = CAC / (ARPU × Gross Margin)
Example: $600 CAC ÷ ($100 × 80%) = 7.5 months
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| Payback Period | Health | Notes |
|---|---|---|
| < 6 months | Excellent | Fast return on acquisition spend |
| 6-12 months | Good | Standard for B2B SaaS |
| 12-18 months | Acceptable | May strain cash flow |
| > 18 months | Concerning | Need strong retention or financing |
Strategies to Improve LTV
1. Reduce Churn (Biggest Impact)
- Improve onboarding and time-to-value
- Proactive customer success outreach
- Build sticky features and integrations
- Offer annual contracts with discounts
- Upsell to higher tiers
- Cross-sell additional products
- Usage-based pricing components
- Regular price increases (3-5% annual)