How LTV is calculated
The simple formula is average monthly revenue per account divided by monthly churn rate. If a customer pays $100/month and churn is 5%, average lifetime is 20 months and LTV is $2,000.
- Lifetime = 1 / monthly churn rate
- LTV = monthly ARPU x lifetime
- Include expansion revenue for a more realistic LTV
The LTV/CAC ratio
LTV/CAC compares estimated relationship revenue with the cost of acquiring a customer. This version uses gross revenue: fees, taxes, and serving costs need a separate analysis.
- There is no universal profitability threshold
- Compare customers and CAC from the same cohort
- Use contribution and payback to evaluate costs and cash flow
Why churn matters more than anything
High churn destroys LTV even with strong pricing. Cutting churn extends lifetime in a compounding way and is almost always cheaper than buying more acquisition.
- Small churn reductions lift LTV disproportionately
- Better retention shortens CAC payback
- Focus on activation and recurring value delivery
See it in real data
Mobile apps
Estimated revenue and downloads from the App Store and Google Play
Frequently asked questions
How do you calculate LTV for a SaaS?
Divide monthly ARPU by your monthly churn rate to get the average lifetime, then multiply by ARPU. Example: $100/month at 5% churn is a 20-month lifetime and $2,000 LTV.
What is a good LTV/CAC ratio?
It depends on contribution margin, payment timing, and the risk in estimated LTV. A gross-revenue ratio does not establish profitability even when it is high.
What is churn?
Churn is your cancellation rate: the percentage of customers (or revenue) lost in a given period. The lower the churn, the longer the customer lifetime and the higher the LTV.
Is the LTV calculator free?
Yes, it is free and requires no signup.