What this calculator measures
LTV — customer lifetime value — estimates the total value an average customer delivers before they churn. This calculator uses the standard SaaS shortcut (ARPU divided by churn rate) and also produces the margin-adjusted LTV, which converts revenue into gross profit. That second number is the one that belongs in any comparison against CAC, because CAC is paid in cash and only gross profit repays cash.
The formulas
LTV = ARPU ÷ monthly churn rate
Margin-adjusted LTV = (ARPU × gross margin) ÷ monthly churn rate
The intuition: at 2.5% monthly churn, the average customer survives 1 ÷ 0.025 = 40 months. Forty months of $99 is $3,960. The formula is exactly that reasoning compressed.
Worked example
ARPU of $99/month, monthly churn of 2.5%, gross margin of 80%. Lifetime = 1 ÷ 0.025 = 40 months. LTV = $99 ÷ 0.025 = $3,960. Margin-adjusted LTV = $3,960 × 0.80 = $3,168 — the figure to set against a CAC of, say, $1,250 (a 2.5:1 ratio on a like-for-like basis).
What good looks like
LTV has no universal benchmark — it only means something relative to CAC. The convention: a margin-adjusted LTV:CAC ratio of 3:1 or better is healthy, with best-in-class SaaS running 4–5:1. What you can benchmark is the inputs: gross margins of 75–85% and monthly revenue churn under 2% put you in the range where the shortcut produces trustworthy numbers.
Common mistakes
- The zero-churn fantasy. At 0% churn the formula divides by zero and LTV is infinite. Near-zero measured churn almost always means your cohorts are too young, not that customers never leave. This calculator refuses to print a number rather than print a fiction.
- Constant-churn assumption. Real churn is front-loaded: early-month cancellations are high, survivors stick. The shortcut can understate mature-cohort value and overstate early value — sanity-check it against cohort curves once you have 12+ months of data.
- Revenue LTV against cash CAC. Compare like with like: margin-adjusted LTV against fully loaded CAC.
- One blended LTV across segments. Enterprise and self-serve customers have different ARPU and different churn; a blended LTV describes neither. Compute per segment.
FAQ
What happens to LTV if churn is zero?
The formula divides by zero, so LTV is mathematically undefined — customer lifetime is unbounded. In practice, near-zero measured churn usually means the company is too young for churn to have shown up. Use a conservative assumption (0.5–1% monthly) or cohort revenue curves instead.
Should LTV use revenue or gross profit?
Gross profit, whenever LTV will be compared with CAC. CAC is real cash out; only the margin on revenue repays it. Revenue-based LTV at 80% gross margin overstates the comparable value by a quarter.
Which churn rate goes into the formula?
Monthly revenue churn is the most defensible for this shortcut, matched to the same period as ARPU. Using customer churn is acceptable if account sizes are uniform; if large accounts churn less than small ones, customer churn will understate LTV.