What is the LTV Calculator?
The LTV Calculator estimates Customer Lifetime Value using average revenue per account, gross margin, and monthly churn rate. LTV represents the total profit a customer generates over their entire relationship with your business. It is the key counterpart to CAC for evaluating unit economics.
How does it work?
Enter your average monthly revenue per account, your gross margin percentage, and your monthly churn rate. The calculator multiplies ARPA by margin to get gross profit per customer, then divides by churn to project total lifetime value. A higher LTV relative to CAC indicates a healthy business model.
Formula
(ARPA x gross margin) / monthly churn
How the calculation works
How the calculation works
- 1Start with average revenue per account (ARPA) per month.
- 2Multiply ARPA by gross margin to find monthly gross profit per customer.
- 3Divide monthly gross profit by the monthly churn rate.
- 4The result is the customer lifetime value in gross profit terms.
Worked example
Worked Example
Kitebase, a fictional SMB SaaS, has an average revenue per account of $180 per month, an 82% gross margin, and a 4% monthly churn rate. It wants to know what each customer is worth to set acquisition budgets.
- 1Convert margin to a decimal: 82 / 100 = 0.82
- 2Multiply ARPA by gross margin: 180 x 0.82 = 147.6 monthly gross profit per customer
- 3Convert churn to a decimal: 4 / 100 = 0.04
- 4Divide monthly gross profit by churn: 147.6 / 0.04 = 3690
Result
Kitebase has an LTV of $3,690 per customer, meaning each customer generates about $3,690 of gross profit over their lifetime with the company.
Interpretation guide
How to read your result
Low LTV usually combines a low price point with high churn, which makes profitable acquisition very difficult.
Fix retention before scaling spend; raise effective pricing or reduce churn before adding acquisition budget.
A normal range for SMB SaaS; whether it is good depends on whether LTV is at least 3x CAC.
Verify the LTV:CAC ratio and CAC payback; both must hold for the model to work.
The range typical of mid-market SaaS with larger contracts and better retention.
You can afford sales-led acquisition; just make sure payback stays under 12 months.
Enterprise-grade LTV driven by large contracts and low churn, the profile of very profitable businesses.
Protect the accounts driving this value with dedicated success teams and expansion motions.
Benchmarks
LTV benchmarks by segment, with the LTV:CAC rule of thumb
| Metric | Typical | Strong |
|---|---|---|
| SMB SaaS | $1,000-10,000 | $10,000+ |
| Mid-market SaaS | $10,000-50,000 | $50,000+ |
| Enterprise SaaS | $50,000+ | $100,000+ |
| LTV:CAC ratio | 3x | 5x+ |
Common mistakes
- - Using revenue instead of gross profit, which overstates LTV significantly
- - Not segmenting LTV by acquisition channel, hiding poor-performing channels
- - Assuming current churn rate is permanent when early-stage churn is often higher
Practical tips
Practical tips
Use gross profit (ARPA x margin), never revenue, when calculating LTV; revenue-based LTV overstates value by 15-30%.
Compute LTV per cohort and per plan, because blended LTV hides the segments where churn is destroying value.
Treat small churn changes seriously: moving monthly churn from 4% to 3% raises LTV by a third.
Compare LTV to CAC monthly and keep the ratio at 3x or higher for most SaaS models.
Use the 12-month payback test: CAC should be recovered from gross profit within about 12 months.
Re-run LTV whenever pricing or churn changes; both move the number materially and quickly.
When should you use it?
- - Assessing overall business health and unit economics
- - Determining how much to spend on customer acquisition
- - Segmenting customers by LTV to prioritize high-value accounts
- - Presenting financial metrics to investors or board members
Benefits
- - Validates whether your business model is fundamentally profitable
- - Guides acquisition budget based on expected lifetime returns
- - Helps identify which customer segments are most valuable
Step-by-step example
Calculate your average monthly revenue per customer from your subscription data. Determine gross margin by subtracting cost of goods sold from revenue and dividing by revenue. Find your monthly churn rate from cohort analysis. The formula uses these three inputs to estimate how much profit a typical customer generates.
Real-world example
A SaaS company with $180 ARPA, 82% gross margin, and 4% monthly churn has an LTV of $3,690. If their CAC is $333, the LTV to CAC ratio is 11:1, indicating very healthy unit economics.