What is SaaS Customer Lifetime Value?
Customer Lifetime Value (LTV, sometimes CLV) is the total gross profit a SaaS business expects to earn from a single customer over the entire time they remain subscribed. It is one of the most important metrics in subscription businesses because it tells you how much you can afford to spend acquiring a customer (CAC) while staying profitable. A healthy SaaS company typically aims for an LTV:CAC ratio of 3:1 or higher.
How to use this calculator
Enter three inputs: your Average Revenue per Account (ARPA) on a monthly basis, your gross margin as a percentage (revenue minus the cost of delivering the service), and your monthly churn rate as a percentage. The calculator returns the margin-adjusted LTV, your monthly contribution margin per account, and the expected customer lifetime in months.
The formula explained
The classic margin-adjusted LTV formula is:
$$\text{LTV} = \frac{\text{ARPA} \times \dfrac{\text{Margin \%}}{100}}{\dfrac{\text{Churn \%}}{100}}$$
The numerator (ARPA \times Gross Margin) is the gross profit each customer generates per month. Dividing by churn rate works because the average customer lifetime equals \(1 \div \text{churn rate}\). For example, a 5% monthly churn implies the average customer stays 20 months. Multiplying monthly contribution margin by that lifetime gives total lifetime value.
Worked example
Suppose ARPA is $100/month, gross margin is 80%, and monthly churn is 5%. Monthly contribution margin = $$\$100 \times 0.80 = \$80.$$ Expected lifetime = $$1 \div 0.05 = 20 \text{ months}.$$ LTV = $$\$80 \times 20 = \mathbf{\$1{,}600}.$$
FAQ
Should I use monthly or annual churn? Keep ARPA and churn on the same time basis. This tool assumes monthly figures, so use monthly churn.
Why include gross margin? Revenue alone overstates value. Margin-adjusted LTV reflects the actual profit you keep after hosting, support, and delivery costs.
What if churn is zero? A zero churn rate implies infinite lifetime, which is unrealistic; the calculator requires a churn rate above zero to produce a finite LTV.
