Customer lifetime value (LTV) calculator

LTV (Lifetime Value) estimates the total revenue a customer generates on average over their entire relationship with your SaaS. The simplest formula starts from two ingredients: monthly ARPU and monthly churn rate.

Average customer lifetime is 1 / monthly churn. A 2.5% monthly churn gives an average lifetime of 1 / 0.025 = 40 months. LTV is then ARPU × lifetime, or ARPU / churn. Worked example: a $59 ARPU and 2.5% churn give a 40-month lifetime and an LTV of 59 × 40 = $2,360.

If you enter a gross margin, the margin-weighted LTV ($2,360 × 80% = $1,888 in this example) is a better basis for comparing against your CAC — a customer who brings in $2,360 of revenue doesn't bring in $2,360 of profit once infrastructure and support costs are deducted.

Why the formula diverges at low churn: as monthly churn approaches 0%, 1 / churn approaches infinity — a customer who never leaves would, mathematically, have infinite value. In practice, no customer is eternal. That's why this simple formula becomes less and less reliable as observed churn nears zero — it extrapolates a recent trend over a time horizon no data actually covers.

Two common mistakes. The first: calculating LTV off churn measured over a single month, which is especially volatile on a small customer base — an LTV that doubles or halves month to month usually isn't a real behavior shift, just statistical noise. The second: comparing an LTV calculated without margin to a CAC, which represents a real cost — this comparison systematically overstates per-customer profitability.

When the metric stops meaning much: at very low monthly churn, or on a customer base too recent to have meaningful retention history, the LTV from this formula mostly reflects an optimistic extrapolation rather than a measurement. Real-cohort retention analysis, over several months of history, gives a more honest picture than this two-variable formula.