Customer Lifetime Value (LTV) Calculator
What a customer is worth over the whole relationship — and how much churn moves it.
How a customer’s value builds up
The running total of a customer’s expected margin, counting customers who leave: it levels off at the LTV.
How much churn matters
The same customer under each timing
The first formula values a customer from just after a payment (the “residual” value); the second counts the first payment too, so it is the most you could spend to win one. Fader and Hardie set out all three.
The cohort period by period
How this was calculated
Sources: David Skok, SaaS Metrics 2.0 – Detailed Definitions; Gupta, Lehmann and Stuart, “Valuing Customers”; Fader and Hardie, “Reconciling and Clarifying CLV Formulas”.
Results are estimates for general information and planning, not financial advice. Banks and institutions may calculate differently (rounding, fees, rate changes). Confirm figures with your lender or a qualified adviser before deciding.
About the Customer Lifetime Value (LTV) Calculator
Customer lifetime value (LTV or CLV) is the gross margin a customer brings in over the whole time they stay. Set it against what it costs to win a customer (CAC) and you know whether growth pays for itself. This calculator works it out three ways: the simple SaaS formula, ARPU × gross margin ÷ churn, with optional expansion revenue; the discounted retention formula m × r ÷ (1 + i − r), which counts money that arrives later as worth less; and your own cohort curve, period by period, when churn is not constant.
Every result shows the expected customer lifetime, LTV:CAC against the 3:1 guideline, the highest CAC that still gives 3:1, when a customer’s expected margin pays back the CAC, and how much the value moves when churn changes — the number that matters most.
How to use it
- Pick a method: Simple for a quick SaaS figure, Discounted to include the time value of money, or Cohort curve to use your own retention report.
- Enter the revenue per customer (ARPU) and the period it is for, and your gross margin. LTV is margin, not revenue: the cost of serving a customer comes off first.
- Simple: enter the churn for the same period. Discounted: the retention rate, your discount rate a year and when the margins arrive. Cohort: paste the customers still active (or the cohort’s revenue), one figure per period, the first period first.
- Optionally enter your CAC for LTV:CAC and the churn-adjusted payback, and under More options add expansion revenue or count at most a horizon such as 36 months.
- Read the value, the chart and the churn table; Copy summary, or download the running total as CSV.
Examples
Margin 40 a month × lifetime 1 ÷ 0.03 = 33.3 months → LTV 1,333.33 LTV:CAC 3.33 · highest CAC for 3:1: 444.44 Churn-adjusted payback: 11.7 months
100 ÷ 0.03 + 5 × 0.97 ÷ 0.03² = 3,333.33 + 5,388.89 = 8,722.22
The cohort Skok uses in SaaS Metrics 2.0, with Stan Reiss’s formula a ÷ c + g(1 − c) ÷ c².
m × r ÷ (1 + i − r) = 80 ÷ 0.32 = 250 (a margin multiple of 2.5) First payment at sign-up: 100 × 1.12 ÷ 0.32 = 350
40 × (1 + 0.8 + 0.7 + 0.65) = 126 for the four months Continued at 86.6% a month (the last three months’ average): + 168.38 = 294.38
Common uses
- Set a ceiling for what marketing can pay to win a customer (the highest CAC for 3:1).
- Compare plans, channels or customer segments by the value of the customers they bring.
- Show investors LTV:CAC and payback with the formula behind them.
- See what a retention project is worth before you fund it.
Three ways to value a customer
- Simple:
LTV = ARPU × gross margin ÷ churn. With a constant churn c the expected lifetime is 1 ÷ c periods (3% a month → 33 months), so LTV is one period’s margin times the lifetime. David Skok adds a version for expansion revenue, when ARPU rises by a fixed amount g each period:LTV = a ÷ c + g(1 − c) ÷ c². Undiscounted — fine for comparing channels or plans. - Discounted retention: the expected sum of each future margin, discounted at your cost of capital, as Gupta, Lehmann and Stuart define customer value. With margin m, retention r and discount rate i per period it simplifies to
m × r ÷ (1 + i − r); r ÷ (1 + i − r) is the margin multiple. - Cohort curve: when churn is high in the first months and then settles, a constant rate misleads. Enter the share of a cohort still active each period (or the cohort’s revenue, which includes expansion and downgrades) and each period’s margin is added up, discounted if you give a rate. The curve can be continued past your data at the retention of its last periods.
Sources: Skok, SaaS Metrics 2.0 – Detailed Definitions, Gupta, Lehmann and Stuart, “Valuing Customers”.
Which discounted formula?
Textbooks print three versions, and the difference is only when the margins arrive. Fader and Hardie set them side by side:
m × r ÷ (1 + i − r)— margins at the end of each period the customer stays. This is the value of a customer from just after a payment (their “residual” value).m × (1 + i) ÷ (1 + i − r)— the first payment at sign-up, then at the start of each period. This is the full value of a customer you have not won yet, so it is the upper limit for what you can spend to acquire one.m ÷ (1 + i − r)— the first margin at the end of the first period.
The second is always the first plus one margin m. The calculator shows all three for your inputs. Source: [Fader and Hardie, “Reconciling and Clarifying CLV Formulas”](http://www.brucehardie.com/notes/024/).
Reading LTV:CAC and the payback
Skok’s guideline is an LTV:CAC higher than 3. He adds that it “assumes you are using the simpler LTV formula that does not include a Gross Margin adjustment, and that you have a Gross Margin of 80% or higher” — so with gross margin included, as here, the result also shows your ratio on his basis (LTV:CAC ÷ margin).
The churn-adjusted payback is the period in which the expected margin of one customer won, counting the customers who leave on the way, adds up to the CAC. It is later than the simple payback (CAC ÷ monthly margin, in the CAC calculator), because some customers leave before paying it back. If it never arrives, each customer costs more than it earns.
Why churn matters most
Because LTV divides by churn, a small change in churn moves it a lot: a tenth less churn adds 11.1% to a simple LTV (1 ÷ 0.9), and halving churn doubles it. The table under the result shows the value at half, three quarters and 1.5 times your churn. Gupta, Lehmann and Stuart found the same at company level: for the firms they studied, a 1% improvement in retention raised firm value by about 5%, against 1% for margin and 0.1% for acquisition cost.
Limitations
- The simple and discounted methods assume one churn rate for the whole lifetime. Churn is usually higher in the first months; use the cohort curve when you have one.
- Averages hide differences: an LTV across all plans can hide a segment that loses money. Work out the important segments separately.
- Gross margin should take off the costs of serving a customer (hosting, support, payment fees), not the cost of acquiring them, which CAC covers.
- The continued cohort curve and very long lifetimes are projections. Cap the value at a horizon your data supports.
Privacy
Everything is worked out in your browser. Revenue, churn, cohorts and costs you enter are never uploaded.
Frequently asked questions
What is the formula for customer lifetime value?
The quick one is LTV = ARPU × gross margin ÷ churn, with ARPU and churn for the same period: 50 a month × 80% ÷ 3% a month = 1,333.33. The discounted one is m × r ÷ (1 + i − r), with m the margin per period, r the retention rate and i the discount rate per period.
Should LTV use revenue or gross margin?
Gross margin. A customer who pays 100 but costs 40 to serve contributes 60 towards acquiring and keeping customers. Revenue LTV overstates the value by the cost of serving. As Skok puts it, “to truly get an accurate picture of LTV, it is important to also take Gross Margin into consideration.”
What is a good LTV:CAC ratio?
David Skok’s guideline is above 3, for an LTV before gross margin at margins of 80% or more. Below 1 each customer costs more to win than they bring in. The result shows your ratio, the guideline and the highest CAC that still gives 3:1.
Why do textbooks give different discounted CLV formulas?
They differ only in when the margins arrive: at the end of each period the customer stays (m × r ÷ (1 + i − r)), at sign-up and then at the start of each period (m × (1 + i) ÷ (1 + i − r)), or at the end of each period including the first (m ÷ (1 + i − r)). Pick the one that matches how you bill; the calculator shows all three.
How do I get LTV from a cohort retention table?
Choose Cohort curve and paste one row of the table — the customers (or %) still active in each month after they joined — with your ARPU and gross margin. Each month’s margin is added up; tick the option to continue the curve at the retention of its last months.
How do I convert monthly churn to annual churn?
Compound it: annual churn = 1 − (1 − monthly)^12, so 3% a month is 30.6% a year, not 36%. The churn rate calculator converts both ways.