— Business & Valuation
Customer Lifetime Value (CLV / LTV) Calculator
Calculate margin-adjusted customer lifetime value from ARPU, gross margin, and churn. Add CAC to see LTV:CAC, CAC payback, discounted LTV, expansion revenue, benchmarks, and churn sensitivity.
Customer lifetime value
$1,600
- LTV:CAC ratio
- 4.00
- Customer lifetime
- 1 yr 8 mos
- CAC payback
- 5 months
- Discounted LTV
- $1,383
- Revenue-only LTV (overstated)
- $2,000
Try: SaaS (monthly), Negative churn (NRR 115%), Annual contract, Losing money (<1:1)
— The LTV build
| Component | Value | Discounted |
|---|---|---|
| ARPU (per month) | $100 | |
| Gross margin | 80% | |
| Margin per month (ARPU × GM) | $80 | |
| Customer lifetime (months) | 20 | 17.29 |
| Customer LTV | $1,600 | $1,383 |
— LTV sensitivity to churn
| Monthly churn | Lifetime (months) | LTV | Discounted LTV |
|---|---|---|---|
| 2.5% | 40 | $3,200 | $2,420 |
| 3.75% | 26.67 | $2,133 | $1,760 |
| 5% | 20 | $1,600 | $1,383 |
| 7.5% | 13.33 | $1,067 | $968 |
| 10% | 10 | $800 | $745 |
| 15% | 6.67 | $533 | $509 |
— Can you afford to acquire them?
Download— How it works
Customer lifetime (periods) = 1 ÷ churn rate. LTV = ARPU × Gross margin % × Customer lifetime = (ARPU × Gross margin %) ÷ churn. LTV:CAC = LTV ÷ CAC. CAC payback (months) = CAC ÷ (ARPU × Gross margin %).
What lifetime value really measures
Customer lifetime value is the total gross-margin profit you expect from a customer across the whole time they stay. Three things drive it: how much they pay each period (ARPU), how much of that you keep after the cost of serving them (gross margin), and how long they stay before churning. The lifetime falls straight out of the churn rate — if 5% of customers leave each month, the average customer stays 1 ÷ 0.05 = 20 months. Multiply the per-period gross-margin contribution by that lifetime and you have the LTV. The single most important discipline here is to use gross margin, not revenue: a customer paying 100 a month at an 80% margin is worth 80 a month to you, not 100, and quoting the revenue figure overstates lifetime value by the entire cost of service.
Worked example — 100 ARPU/month, 80% gross margin, 5% monthly churn: Customer lifetime = 1 ÷ 0.05 = 20 months. Margin per month = 100 × 80% = 80. LTV = 80 × 20 = 1,600 (margin-adjusted). Revenue-only LTV would be 2,000 — overstated by 400.
LTV:CAC and payback — what investors look at
LTV on its own doesn’t tell you whether a business works; it has to be set against what you pay to acquire a customer. The LTV:CAC ratio does exactly that. The widely-cited benchmark for a healthy SaaS business is 3:1 — every dollar of acquisition cost returns three dollars of lifetime margin. Below 1:1 you lose money on every customer you acquire, which is unsustainable no matter how fast you grow. Interestingly, a very high ratio (say 6:1 or more) isn’t purely good news either — it can signal that you’re under-investing in growth and could profitably spend more to acquire faster.
The companion metric is CAC payback: how many months of gross margin it takes to earn back the acquisition cost. It answers a cash-flow question the ratio doesn’t — how long your capital is tied up before a customer turns profitable. Under twelve months is generally considered strong for SaaS; much longer and growth becomes expensive to fund, because you’re paying to acquire customers long before they pay you back. The gauge above places your ratio on the benchmark scale, and the payback figure sits alongside it.
Churn, discounting and expansion
Churn is the dominant lever on LTV, and the relationship is non-linear: because lifetime is 1 ÷ churn, halving churn doubles the lifetime and doubles the LTV. The sensitivity table and chart show this directly — small improvements in retention move LTV far more than equivalent changes in price. That’s why retention is so often the highest-leverage thing a subscription business can work on.
Two refinements make the number more honest. Discounting recognises that margin earned years from now is worth less than margin earned today; the discounted LTV applies your cost of capital to future periods and is the more rigorous figure for valuation. Expansion works the other way: when existing customers upgrade and spend more over time, net revenue retention can exceed 100% — “negative churn” — and lifetime value compounds rather than decays. The very best SaaS businesses run NRR well above 100%, which is why a cohort can be worth more in year three than in year one. Because that growth has no finite infinite-horizon sum, the calculator caps expansion scenarios at a sensible time-bound horizon. Educational tool only, not investment advice.
— Reader questions
How do you calculate customer lifetime value?
Multiply the per-period gross-margin contribution by the customer lifetime: LTV = ARPU × gross margin % × lifetime, where lifetime = 1 ÷ churn rate. For a customer paying 100 a month at an 80% gross margin with 5% monthly churn: lifetime = 20 months, margin = 80/month, LTV = 1,600. Always use gross margin rather than revenue, or you overstate the value by the cost of serving the customer.
What is a good LTV:CAC ratio?
The widely-used benchmark for a healthy SaaS business is about 3:1 — three dollars of lifetime margin for every dollar of acquisition cost. Below 1:1 you lose money on each customer. A very high ratio (6:1 or more) can paradoxically mean you’re under-investing in growth and could afford to acquire more aggressively. The calculator places your ratio on a benchmark gauge against the 3:1 target.
What is CAC payback period?
It’s the number of months of gross margin needed to recover the cost of acquiring a customer: CAC ÷ (ARPU × gross margin %). It measures how long your capital is tied up before a customer becomes profitable. Under 12 months is generally considered strong for SaaS; a long payback makes growth expensive to fund because you pay to acquire customers well before they pay you back.
Should LTV use revenue or gross margin?
Gross margin. Revenue-based LTV ignores the cost of serving the customer and overstates their true worth — sometimes dramatically. The margin-adjusted figure is what you can actually spend on acquisition and still make money, so it’s the honest version and the one to compare against CAC.
How does churn affect lifetime value?
Enormously, and non-linearly. Lifetime equals 1 ÷ churn, so cutting churn in half doubles the average lifetime and doubles LTV. That makes retention the single highest-leverage lever on lifetime value — usually higher than price. The sensitivity table here shows LTV across a range of churn rates so you can see the effect directly.
What is net revenue retention and negative churn?
Net revenue retention (NRR) measures how a cohort’s revenue changes over a period, netting expansion (upgrades, seat growth, cross-sell) against churn and downgrades. Above 100% is “negative churn”: existing customers grow faster than churn shrinks them, so a cohort’s revenue rises over time and lifetime value compounds. It’s a hallmark of the strongest SaaS businesses, and it materially raises LTV — though because it has no finite infinite-horizon value, it’s modelled over a capped time horizon.