Customer Lifetime Value Calculator
Enter monthly revenue per customer, churn, gross margin and acquisition cost to get customer lifetime value, the LTV:CAC ratio with a health rating, and how many months it takes to earn back CAC.
Unit economics
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What if churn changes?
| Monthly churn | Lifetime | LTV | LTV : CAC |
|---|
Uses the standard steady-state model: a constant monthly churn rate means customers stay 1 ÷ churn months on average. Annual churn is converted to monthly with 1 − (1 − annual)1/12.
How to use the Customer Lifetime Value Calculator
- Enter ARPU: the average monthly revenue you get from one customer.
- Enter your churn rate and choose whether it is per month or per year.
- Add your gross margin (revenue minus direct costs, as a %) and your customer acquisition cost.
- Press Calculate LTV to see lifetime value, the LTV:CAC ratio and rating, and CAC payback.
- Check the sensitivity table to see how much LTV improves if you reduce churn.
LTV formulas
| Metric | Formula |
|---|---|
| Customer lifetime value (LTV) | ARPU × gross margin ÷ monthly churn |
| Average lifetime (months) | 1 ÷ monthly churn |
| Revenue LTV | ARPU ÷ monthly churn |
| LTV:CAC ratio | LTV ÷ CAC |
| CAC payback (months) | CAC ÷ (ARPU × gross margin) |
| Monthly churn from annual | 1 − (1 − annual churn)1/12 |
Worked example
A subscription app charges 50 a month, has an 80% gross margin, loses 2.5% of customers each month and spends 400 to acquire each one.
- Gross profit per month: 50 × 0.8 = 40.
- Average lifetime: 1 ÷ 0.025 = 40 months.
- LTV: 40 ÷ 0.025 = 1,600 (revenue LTV 2,000).
- LTV:CAC: 1,600 ÷ 400 = 4.0 : 1, a healthy ratio.
- CAC payback: 400 ÷ 40 = 10 months.
LTV:CAC benchmarks
| LTV:CAC | Rating | What it usually means |
|---|---|---|
| Below 1:1 | Losing money | Every new customer destroys value |
| 1:1 to 3:1 | Needs work | Profitable per customer but little left for overheads |
| 3:1 to 5:1 | Healthy | The standard target for efficient growth |
| Above 5:1 | Very strong | Room to spend more on acquisition and grow faster |
Frequently asked questions
How do you calculate customer lifetime value?
A common formula for subscription businesses is LTV = ARPU × gross margin ÷ churn rate, using monthly ARPU and monthly churn. For example 50 a month at an 80% margin with 2.5% monthly churn gives 50 × 0.8 ÷ 0.025 = 1,600.
What is a good LTV:CAC ratio?
About 3:1 is the usual benchmark: each customer brings in three times what it cost to acquire. Below 1:1 you lose money on every customer, 1:1 to 3:1 is thin, 3:1 to 5:1 is healthy, and above 5:1 you may be under-spending on growth.
What is CAC payback period?
CAC payback is how many months of gross profit it takes to earn back the cost of acquiring a customer: CAC ÷ (ARPU × gross margin). Under 12 months is considered good for most SaaS and subscription businesses.
How long does an average customer stay?
With a constant churn rate the average lifetime is 1 ÷ churn. At 2% monthly churn customers stay 50 months on average; at 5% they stay only 20 months.
Why use gross margin instead of revenue?
Revenue LTV overstates value because serving a customer costs money (hosting, support, goods, payment fees). Multiplying by gross margin gives the profit a customer actually contributes, which is what you compare with CAC.
How do I convert annual churn to monthly?
Monthly churn = 1 − (1 − annual churn)^(1/12). For example 30% annual churn is about 2.93% a month, not 2.5%, because churn compounds.
What are the limits of this LTV formula?
It assumes ARPU and churn stay constant and does not discount future cash. Early-stage companies with little churn data, expansion revenue or strong seasonality should treat the result as an estimate and recheck it with cohort data.