Know what a customer is really worth.
Enter your revenue per customer, gross margin and churn to see lifetime value, how long the average customer stays, and whether your LTV:CAC ratio can support profitable growth.
Your numbers
Churn and lifespan are two views of the same thing: lifespan = 1 / churn. Edit either one.
What your numbers say
How LTV explodes as churn drops
Lifetime value at different monthly churn rates
Unit economics scorecard
LTV at several churn rates
Same revenue per customer and gross margin, different retention. Lower churn means a longer lifespan and dramatically higher value.
| Monthly churn | Avg lifespan | Lifetime value | LTV:CAC |
|---|
Lifetime value, explained
LTV Formula
LTV = ARPU × Gross Margin × Average Customer Lifetime. Average lifetime = 1 / monthly churn rate. 2% monthly churn = 50-month average lifetime.
Why Use Gross Margin
Revenue isn't profit. Servicing customers has costs (hosting, support, payments). Using gross margin gives true contribution per customer.
LTV:CAC Ratio
The most important SaaS metric. Healthy: LTV is 3x+ CAC. 5x+ is excellent. <3x = struggling to scale efficiently. <1x = each customer loses money.
Improving LTV
Reduce churn (better onboarding, customer success). Increase ARPU (upsells, price increases). Improve gross margin (efficient infrastructure, cheaper support).
Common questions
Should I use gross margin or revenue LTV?
Gross margin is more accurate for unit economics. Revenue LTV is easier to communicate. Use both.
What if my churn is annual?
Convert to monthly: monthly churn = 1 - (1 - annual_churn)^(1/12). Or use annual churn with months × 12 in formula.
What's good LTV:CAC ratio?
3:1 healthy, 5:1+ excellent. Below 3:1 means scaling is hard. Below 1:1 means each customer loses money.
How accurate is LTV for new startups?
Less accurate, small customer base + short history = high variance. Use cohort analysis instead of pure formula for early-stage.
Should I include upsells in LTV?
Yes, especially expansion revenue. Some companies use net dollar retention (NDR), accounts for expansion + churn + downgrades.
Estimates for planning only. The simple LTV formula assumes steady churn and margin. Real cohorts vary, expansion revenue and discount rates shift the number. Use alongside cohort analysis before making spending decisions.