How do you calculate Customer Lifetime Value (LTV)?

Basic LTV = ARPU / Monthly Churn Rate. For a $100/month customer with 5% monthly churn: LTV = $100 / 0.05 = $2,000. For more accurate unit economics, multiply by gross margin: Adjusted LTV = LTV × Gross Margin.

What is a good LTV:CAC ratio?

The industry standard for healthy SaaS is 3:1 LTV:CAC. Below 2:1 is concerning (you may be losing money per customer). Above 5:1 suggests under-investment in growth. Most VCs look for 3:1 or higher before investing.

What is CAC payback period?

CAC payback is how many months it takes to recover customer acquisition costs. Formula: CAC / (Monthly ARPU × Gross Margin). Under 12 months is good for SMB SaaS. Enterprise may accept 18-24 months with longer contracts.

How does expansion revenue affect LTV?

Expansion increases LTV by extending effective customer lifetime. With expansion, LTV = ARPU / (Churn Rate - Expansion Rate). If expansion exceeds churn (net negative churn), LTV becomes theoretically infinite — you grow without new customers.

How can I increase my LTV?

Three levers: (1) Reduce churn through better onboarding, product, and success programs, (2) Increase ARPU through pricing, upsells, and feature tiers, (3) Drive expansion through usage-based pricing, add-ons, and seat growth.

Should I use simple LTV or adjusted LTV?

Use gross margin-adjusted LTV for unit economics and fundraising. Simple LTV overstates value by ignoring costs. If your gross margin is 80%, your adjusted LTV is 80% of simple LTV. Most investors expect adjusted LTV in metrics.

LTV Calculator

Calculate Customer Lifetime Value instantly. Get LTV:CAC ratio, CAC payback, expansion-adjusted LTV, and AI recommendations to maximize customer value.

Enter Your Values

Average Revenue Per User (Monthly)*

Monthly recurring revenue per customer

Monthly Churn Rate*

Percentage of customers who cancel each month

Gross Margin

Gross margin percentage for adjusted LTV

Customer Acquisition Cost

Total cost to acquire one customer (for LTV:CAC)

Monthly Expansion Rate

Average monthly revenue increase from existing customers

Formula

LTV = ARPU / Monthly Churn Rate

Customer Lifetime Value is the total revenue expected from a customer over their relationship with your business. Gross margin-adjusted LTV is more accurate for unit economics.

Customer Lifetime Value (LTV)$1,600

Solid $1.6K LTV — 20 month lifetime.

LTV (before margin)$2,000

Avg Customer Lifetime20.0 months

Annual Customer Value$960

LTV (with expansion)$2,667

LTV:CAC Ratio3.2:1

CAC Payback6.3 months

Net LTV (LTV - CAC)$1,100

LTV:CAC Ratio Benchmarks

Under-investingLTV:CAC > 5:1 — room to invest more in growth

> $5

HealthyLTV:CAC 3-5:1 — sustainable unit economics

$3 – $5

Needs WorkLTV:CAC 2-3:1 — improve efficiency

$2 – $3

UnsustainableLTV:CAC < 2:1 — losing money per customer

$0 – $2

Source: SaaS Capital & a16z Benchmarks

How to Calculate LTV

Enter your Average Revenue Per User (monthly subscription price)
Enter your monthly customer churn rate
Optionally add gross margin for adjusted LTV
Add CAC to calculate LTV:CAC ratio and payback period
Add expansion rate for LTV with account growth
Chat with our AI SaaS Analyst for value maximization strategies

LTV Benchmarks

3:1 or higher

Healthy LTV:CAC

<12 months

Good CAC Payback

<24 months

Enterprise CAC Payback

>120%

Top Quartile NRR

Expansion > Churn

Net Negative Churn Target

Source: SaaS Capital & a16z 2024