👥 Customer Lifetime Value Calculator
LTV tells you what a customer is worth over their lifetime — and how much you can afford to spend acquiring one.
How Customer Lifetime Value Works
LTV (lifetime value) is the total gross profit a customer generates before churning. Paired with CAC, it answers the existential question: does our growth engine make money?
The Formulas
LTV = ARPU × Gross Margin × Lifespan
The golden rule: LTV:CAC ≥ 3:1. Below 3:1, growth destroys value; above 5:1, you are likely under-investing in growth. Because churn sits in the denominator, cutting churn is the highest-leverage way to raise LTV — halving churn doubles lifetime value.
Worked Example
$120 ARPU × 80% margin = $96/month gross profit. At 5% monthly churn, lifespan = 1 ÷ 0.05 = 20 months → LTV = $1,920. With $300 CAC, LTV:CAC = 6.4:1 — excellent. Max affordable CAC at 3:1 = $640; lifetime profit per customer = $1,620.
Using LTV to Make Spending Decisions
LTV's real job is setting CAC ceilings per channel: compute LTV separately for organic, paid, and partner-acquired customers — they churn differently, and blended LTV misprices every channel. Pair LTV:CAC with the payback period (months to recover CAC): a 5:1 ratio with a 24-month payback still starves cash flow, while 3:1 with 6-month payback funds itself. Define gross margin honestly — include hosting, support, onboarding, and payment fees, not just COGS; overstated margin is the most common LTV inflation. Expansion revenue belongs in advanced LTV models: customers who upgrade over time are worth far more than ARPU × lifespan suggests. And segment ruthlessly: enterprise vs. SMB, annual vs. monthly — a single company-wide LTV is a fiction that hides your best and worst economics.
Sanity-check with payback: divide CAC by monthly gross profit per customer — if payback exceeds 12 months (18 for enterprise), growth consumes dangerous amounts of cash regardless of a healthy LTV:CAC ratio. The best businesses pair 3:1+ LTV:CAC with sub-12-month payback: profitable growth that funds itself.
Frequently Asked Questions (FAQs)
What is a good LTV to CAC ratio?
3:1 or higher is the standard benchmark. Below 3:1 suggests unprofitable growth; above 5:1 suggests you could profitably spend more on acquisition.
How do I calculate customer lifespan?
1 ÷ churn rate (as a decimal). 5% monthly churn → 20-month lifespan. Use cohort-measured churn, not aspirational targets.
Should LTV use revenue or gross profit?
Gross profit — always subtract cost of goods/servicing. Revenue-based LTV overstates value, especially for low-margin businesses.
How can I increase LTV?
Reduce churn (biggest lever), raise prices or upsell (expansion revenue), and improve gross margin. Retention work compounds across every future cohort.
LTV for e-commerce vs SaaS?
E-commerce: average order value × purchase frequency × lifespan. SaaS: ARPU × margin ÷ churn. Same concept, different inputs.
Last updated: September 2026