What Is Customer Lifetime Value (LTV)?

Customer lifetime value — LTV or CLV — is the total gross profit a customer generates over their entire relationship with your business. A subscriber paying $49/month at 80% gross margin who stays 25 months is worth $980, not $49. LTV is the ceiling on what you can rationally spend to acquire a customer: paired with customer acquisition cost, it forms the unit-economics test that determines whether a business model works at all — does each customer generate more than they cost?

How LTV Is Calculated

This is the standard steady-state formula used across subscription businesses, popularised in David Skok's SaaS metrics framework. The key detail most simple calculators skip: LTV must be built on gross profit, not revenue. Revenue-based LTV overstates customer worth by whatever it costs to serve them — hosting, support, payment fees — which for a typical SaaS business means inflating the figure by 20–30%.

Why Churn Dominates LTV

Because lifespan is 1 ÷ churn, churn sits in the denominator — and small changes there move LTV enormously. At 5% monthly churn a customer stays 20 months; cut churn to 2.5% and lifespan doubles to 40 months, doubling LTV without changing price or margin. No pricing experiment or ad optimisation can match the compounding power of retention, which is why experienced operators treat churn reduction as the highest-leverage growth work in the company.

What Is a Good LTV?

• LTV:CAC of 3:1 is the classic benchmark — each customer should return at least three times their acquisition cost in lifetime gross profit
• Below 1:1 means you lose money on every customer acquired; scaling makes it worse
• Above 5:1 often signals under-investment — you could grow faster by spending more on acquisition
• Healthy monthly churn benchmarks: under 2% for SMB SaaS, under 1% for mid-market, near zero for enterprise; consumer subscriptions tolerate 4–6%

How to Use This Calculator

Enter your average revenue per customer per month (your subscription price, or total monthly revenue divided by active customers), your gross margin percentage, and your monthly customer churn rate. The calculator returns lifetime value, average customer lifespan, and monthly gross profit per customer. Add your CAC and it also computes the LTV:CAC ratio and payback period, grading the result against the 3:1 benchmark. If you don't know your churn rate, divide customers lost last month by customers at the start of the month.

Worked Example

A SaaS product charges $49/month at 80% gross margin with 4% monthly churn. Gross profit per customer is $39.20/month; average lifespan is 1 ÷ 0.04 = 25 months; LTV is $980. With a CAC of $400, the LTV:CAC ratio is 2.45:1 — below the 3:1 benchmark. The founder's options, in order of leverage: cut churn to 3% (LTV jumps to $1,307 and the ratio to 3.3:1), improve margin, raise price, or reduce CAC. Notice how the churn fix alone clears the benchmark.

Five Ways to Increase LTV

• Attack churn first: onboarding improvements, usage-based check-ins, and cancellation save-offers move the denominator
• Expand within accounts: upsells and seat expansion raise ARPU from customers you've already paid to acquire
• Move customers to annual plans: annual billing typically cuts effective churn dramatically versus monthly
• Improve gross margin: renegotiate infrastructure and support costs — margin multiplies directly through the formula; check yours with the profit margin calculator
• Price against value, not competitors: underpricing suppresses LTV permanently and is the hardest error to unwind later

LTV in the Bigger Picture

LTV closes the loop that CAC opens: together they tell you whether growth creates or destroys value. From there, your burn rate and runway determine how long you can fund that growth, and your break-even point marks where the whole engine becomes self-sustaining. If your ratio came in below 3:1, start with churn — then revisit this page and watch the number move.

Frequently Asked Questions