Customer Lifetime Value (LTV) Calculator
Compute gross margin-adjusted Customer Lifetime Value (LTV) and average customer account lifespan across monthly logo churn rates.
Model Parameters
Gross profit contribution generated over the customer lifecycle.
What Is Customer Lifetime Value (LTV)?
Customer Lifetime Value (LTV) is the total gross profit a SaaS business expects to earn from a customer over the entire commercial relationship. A proper SaaS LTV calculator multiplies average revenue per account (ARPA) by gross margin and divides by the churn rate — because a customer is only worth the margin-adjusted revenue they generate before they cancel. LTV is the numerator that gives acquisition spend its meaning: without it, CAC is just a cost; with it, CAC becomes an investment with a measurable return.
The metric most people actually care about is the LTV:CAC ratio, which answers the only question that matters in SaaS unit economics: for every dollar we spend acquiring a customer, how many dollars of gross profit come back? The classic benchmark is 3:1 — spend a dollar, get three back. Below that, growth consumes more value than it creates; far above 5:1, you may be under-investing in growth and leaving market share on the table. Because LTV compounds small errors in churn assumptions into large valuation swings, finance teams in 2026 increasingly report LTV by cohort and segment rather than as a single company-wide number, since a single blended figure hides the spread between sticky enterprise accounts and leaky SMB ones.
Customer Lifetime Value Formula
Variable definitions:
- Monthly ARPA — Average revenue per account per month, computed as MRR ÷ total customers. Use account-level ARPA (not per-seat or per-user) so the unit matches the customer count in your churn rate.
- Gross Margin % — (Revenue − cost of goods sold) ÷ revenue, expressed as a decimal. For SaaS this is typically 0.70–0.85 after hosting, support, and customer success delivery costs. Never use revenue without the margin adjustment — it overstates LTV by 15–30 percent.
- Monthly Churn Rate — The fraction of customers (logo churn) or revenue (revenue churn) lost per month, expressed as a decimal. Use the churn definition that matches the ARPA unit: logo churn with per-account ARPA.
The formula assumes churn is constant, which makes it an approximation — real cohorts decay on a curve. For board-level work it is the standard; for pricing and packaging decisions, cohort-based LTV built from actual retention curves is more accurate.
The companion ratio:
Worked Example
Consider a vertical SaaS company in 2026 with these metrics:
- MRR: $480,000 across 400 customers → Monthly ARPA = $1,200
- Gross margin: 82% (0.82)
- Monthly logo churn: 2.5% (0.025)
LTV = ($1,200 × 0.82) ÷ 0.025 = $984 ÷ 0.025 = $39,360
Now suppose fully loaded CAC is $9,800. The LTV:CAC ratio = $39,360 ÷ $9,800 ≈ 4.0:1 — comfortably above the 3:1 bar.
Sensitivity check — this is where LTV gets dangerous. If churn were actually 4% instead of 2.5% (a common mismeasurement when involuntary churn is excluded), LTV drops to ($1,200 × 0.82) ÷ 0.04 = $24,600, and the ratio falls to 2.5:1 — below the efficiency threshold. A 1.5-point error in churn flips the entire investment conclusion, which is why best-practice teams reconcile the churn input against billing-system data every quarter rather than trusting a dashboard default.
Benchmarks
| Segment | Healthy LTV:CAC | Notes |
|---|---|---|
| SMB / self-serve | 3:1 – 5:1 | High churn is offset by low CAC; payback speed matters more than the ratio |
| Mid-market | 3:1 – 6:1 | The classic efficient-growth band; expansion revenue lifts the ratio |
| Enterprise | 4:1 – 8:1+ | High CAC is justified by large ACVs, multi-year terms, and low churn |
Reading the ratio:
- Below 3:1 — Acquisition economics are broken or the business is in deliberate land-grab mode. Either fix churn/pricing or acknowledge the burn.
- 3:1 to 5:1 — The efficient growth zone most Series A–C investors want to see.
- Above 5:1 — Efficient, but possibly under-spending on growth. If competitors are out-investing you for share, a 7:1 ratio can be a strategic mistake, not a victory.
Two caveats. First, LTV:CAC is a trailing indicator — it describes the customers you already acquired, not the marginal efficiency of your next dollar of spend. Second, never compute LTV with revenue churn and ARPA-per-seat mixed with logo counts; mismatched units are the most common source of fantasy LTVs in pitch decks.
Frequently Asked Questions
What is the customer lifetime value formula?
The standard SaaS formula is: LTV = (ARPA × gross margin) ÷ churn rate, using matching time units — monthly ARPA with monthly churn, or annual values with annual churn. Always margin-adjust: revenue without COGS overstates lifetime value. For the ratio investors care about, divide the result by fully loaded CAC to get LTV:CAC.
What is a good LTV to CAC ratio for SaaS?
3:1 is the widely cited minimum for healthy SaaS unit economics — three dollars of lifetime gross profit for every acquisition dollar. The 3:1–5:1 band is considered efficient growth; above 5:1 can signal under-investment in growth. Early-stage companies in land-grab mode sometimes run below 3:1 deliberately, but they should be able to show a credible path back above it.
How do you calculate LTV when churn is very low?
The formula still works — low churn simply produces a large LTV, which is mathematically correct but practically fragile: at 0.5% monthly churn, implied customer lifetime is 200 months, well beyond any observable data. Cap the horizon at 5–7 years for planning purposes, and segment enterprise accounts (contractually committed) from self-serve (behaviorally retained) rather than blending them into one number.
Should LTV use gross margin or contribution margin?
Use gross margin at minimum — revenue minus hosting, support delivery, and other COGS. Sophisticated teams go further and use contribution margin, subtracting customer success and account management costs too, since those scale with the customer base. Whichever you choose, disclose it: an LTV computed on revenue alone is 15–30% higher than a margin-adjusted one, and mixing definitions across periods makes trends meaningless.
Why does my LTV keep changing every quarter?
Because churn and ARPA move. LTV is hypersensitive to churn — a one-point change in monthly churn can swing LTV by 30% or more. Track the inputs (ARPA, margin, churn by cohort) rather than the headline number, and investigate which input moved before reacting. Most "LTV collapses" are actually churn measurement changes, not business changes.
Is LTV:CAC or CAC payback period more important?
They answer different questions. LTV:CAC measures total return on acquisition spend — the efficiency of the machine. CAC payback period measures how fast the cash comes back — the liquidity of the machine. A bootstrapped company should optimize payback (cash is survival); a venture-backed company in a winner-take-most market may tolerate slower payback for a strong LTV:CAC. Report both; optimize the one your capital structure demands.