Customer Lifetime Value Calculator

How to calculate customer lifetime value (LTV)

Customer lifetime value estimates the total revenue, or gross profit, an average customer brings in before they cancel. For a subscription business the standard formula needs three numbers:

1. Monthly ARPA. Your MRR divided by the number of paying customers. See ARPA.
2. Monthly churn rate. The share of customers who cancel in a month. If you don't have it, work it out with the churn rate calculator.
3. Gross margin (optional). Revenue minus the cost of delivering the service (hosting, support, payment fees), as a share of revenue. See gross margin.

Then:

This is the same structure David Skok lays out in his SaaS Metrics guide, where LTV is revenue per customer multiplied by the average customer lifetime, less the cost to serve them, and lifetime is one divided by churn. The Benchmarkit 2025 benchmark report uses the gross margin version when it calculates LTV:CAC.

Worked example

A project management tool has $60,000 MRR across 500 paying customers. It loses 2.5% of its customers each month and runs at an 80% gross margin.

• ARPA: $60,000 / 500 = $120 a month
• Average customer lifetime: 1 / 0.025 = 40 months
• Revenue LTV: $120 / 0.025 = $4,800
• Gross margin LTV: $4,800 x 0.80 = $3,840
• Annual value per customer: $120 x 12 = $1,440

If this company spends $1,280 to acquire a customer, its gross margin LTV:CAC ratio is $3,840 / $1,280 = 3.0. Cutting monthly churn from 2.5% to 2% lifts gross margin LTV to $4,800, a 25% increase without touching the price. That is why churn is the biggest lever on LTV.

Monthly vs annual inputs

Keep the units consistent: monthly ARPA with monthly churn, or annual revenue per customer with annual churn. Mixing them makes LTV twelve times too high or too low.

If you only know annual churn, convert it with monthly churn = 1 - (1 - annual churn)^(1/12). A 25% annual churn rate is about 2.4% a month, which implies a lifetime of about 42 months. Dividing 25% by 12 gives 2.08% and a lifetime of 48 months, so the shortcut overstates LTV.

If most customers pay annually, monthly churn is lumpy because cancellations land on renewal dates. In that case, measure churn over a full year and use annual figures throughout.

Common LTV mistakes

• Using revenue LTV for spending decisions. Acquisition is funded from gross profit, so compare CAC with gross margin LTV, not revenue LTV.
• Mixing time units. Monthly ARPA divided by annual churn is the most common way to get an absurd LTV.
• Trusting tiny churn rates. At 0.5% monthly churn the formula assumes a 200-month lifetime, more than 16 years. Many teams cap the lifetime at a planning horizon, such as three or five years.
• Using early data as long-run churn. A young company has not seen enough renewals to know its real churn. Check how churn develops by signup month with cohort analysis.
• Blending very different customers. An average of $20 self-serve plans and $2,000 contracts describes neither group. Calculate LTV per plan or segment.
• Ignoring expansion. The simple formula assumes ARPA never changes. If customers upgrade a lot, the formula understates LTV, and a cohort view of revenue per customer over time is more accurate.

What's a good LTV?

There is no good LTV in dollars. A $3,000 LTV is excellent if a customer costs $500 to acquire and a problem if it costs $4,000. That is why LTV is almost always judged against CAC:

• LTV of at least 3x CAC. David Skok's rule of thumb in his SaaS Metrics guide is that LTV must be at least three times CAC, and that CAC should be recovered in less than 12 months.
• Churn sets the lifetime. ChartMogul reported median monthly customer churn of 6.1% for products with ARPA under $25 and 2.2% for ARPA over $500. Those rates imply average lifetimes of about 16 and 45 months, so a low-priced product needs a much lower CAC to reach the same ratio.
• Gross margin sets how much of LTV you keep. The Benchmarkit 2025 report found a median subscription gross margin of 81% and a median total gross margin of 77% (including services).
• Retention keeps improving LTV after the sale. SaaS Capital's 2025 survey of more than 1,000 private B2B SaaS companies put median net revenue retention at 101%, meaning expansion from the median company's existing customers slightly more than offsets what it loses.

How this calculator works

• Customer lifetime value is ARPA divided by monthly churn. It is a revenue figure unless you enter a gross margin.
• Average customer lifetime is 1 divided by monthly churn, in months.
• Annual value per customer is ARPA x 12. It is not affected by churn.
• Gross margin LTV is LTV multiplied by the gross margin you enter. The field starts at 100%, which makes it equal to revenue LTV.
• Assumptions: churn and ARPA stay constant forever, expansion and contraction are ignored, and future revenue is not discounted. These keep the formula simple and comparable, but treat the result as an estimate, not a forecast. The math runs in your browser.

How to increase LTV

• Reduce churn. The biggest lever. Cutting churn from 5% to 3% increases LTV by 67%.
• Increase ARPA. Upsells, add-ons and expansion revenue all raise LTV.
• Sell annual plans. Fewer renewal moments mean fewer chances to cancel.
• Improve onboarding. Customers who get value early stay longer.
• Protect gross margin. Lower hosting, support and payment costs raise gross margin LTV directly.

Related metrics and guides

• LTV (customer lifetime value), the full guide including cohort-based LTV
• LTV:CAC ratio, the main use of LTV
• Customer lifetime, how long customers stay
• CAC payback period, how fast you get acquisition spend back
• How to calculate customer lifetime value in SaaS, a longer walkthrough

Put your LTV next to your acquisition cost with the LTV:CAC ratio calculator, or see how fast that cost comes back with the CAC payback calculator.