SaaS LTV Calculator
Calculate SaaS customer lifetime value (LTV) and LTV:CAC ratio.
What this calculator does
This calculator works out what a SaaS customer is worth over their lifetime and whether you can afford to acquire them. Enter average monthly revenue per customer, monthly churn rate, gross margin, and customer acquisition cost, and it returns lifetime value, the LTV to CAC ratio, and the average customer lifetime in months that the churn rate implies.
The ratio is the number that matters. LTV alone is an abstraction — a projection of revenue that has not arrived yet. Set against what you paid to win the customer, it becomes a verdict on whether the growth engine creates value or destroys it, which is the question every investor asks first.
When to use it
The most common trigger is deciding how much to spend on acquisition. Before increasing paid budget, hiring a sales rep, or agreeing to an agency retainer, LTV tells you the ceiling above which winning a customer stops being worthwhile.
It is equally the right tool for prioritizing between retention and acquisition. Because LTV is inversely proportional to churn, running two scenarios — one with lower churn, one with lower CAC — usually shows retention delivering more value per dollar than the growth team assumes. That comparison is often the strongest argument for funding onboarding and customer success ahead of another marketing channel.
Understanding the inputs
Average monthly revenue per customer should be recurring subscription revenue only. Strip out one-time implementation fees and professional services, which do not repeat and will inflate the lifetime figure.
Monthly churn is customers lost during a month divided by customers at the start, with new signups excluded from the denominator. Gross margin should reflect cost of revenue — hosting, third-party APIs, support, and onboarding — and typically lands between 70 and 85 percent for a healthy SaaS business. CAC is total sales and marketing spend for a period divided by new customers won in that period, including salaries, not just media cost.
How is this calculated?
LTV = (Avg Revenue × Gross Margin %) / Monthly Churn. LTV:CAC = LTV / CAC. Aim for LTV:CAC > 3.
A worked example
A B2B SaaS product charges $150 a month, runs an 80 percent gross margin, and loses 2.5 percent of customers monthly. Each customer contributes $120 a month, the implied lifetime is 40 months, and LTV comes to $4,800. Against a CAC of $1,400 the ratio is roughly 3.4 to one — healthy, with payback at about 12 months.
Now cut churn to 1.5 percent without changing anything else. Implied lifetime stretches to 67 months and LTV rises to $8,000, taking the ratio to 5.7. That single percentage point added $3,200 per customer. Reaching the same ratio through acquisition instead would mean cutting CAC from $1,400 to about $840.
Limitations and assumptions
The formula assumes churn stays constant forever, which no cohort does. Real churn is heavily front-loaded, so a constant-rate model overstates value for early customers and understates it for survivors. It also ignores expansion revenue, discount rates, and the time value of money — LTV realized over five years is worth materially less than the same sum today.
It treats all customers as identical, which breaks down badly when contract sizes vary widely. For board reporting or fundraising, use cohort-based retention curves and net revenue retention rather than this single-point estimate. Use the calculator to sanity-check acquisition spend and to compare scenarios, not as the number you present as fact.
Common Questions
- What is a good LTV:CAC ratio?
- Three to one is the common rule of thumb for B2B SaaS, though it varies by stage and sector. Below one you lose money on every customer. Between one and three the model works but leaves little to reinvest. Much above five often signals underinvestment in growth rather than excellence.
- Why does LTV use gross margin instead of revenue?
- Because revenue you spend on hosting, support, and onboarding is not available to fund acquisition. A customer paying $150 a month at 80 percent gross margin contributes $120. Calculating LTV on the full $150 overstates it by a quarter and makes a marginal acquisition channel look profitable.
- How do I calculate monthly churn correctly?
- Divide customers lost during the month by customers at the start of that month, excluding new signups from the denominator. Mixing them in dilutes the rate and flatters the result. If you sell annual contracts, compute annual churn first and convert, since monthly logo churn is meaningless on annual terms.
- Should I use logo churn or revenue churn?
- Revenue churn is more honest for a business with varied contract sizes, because losing one enterprise account can outweigh twenty small ones. This calculator uses a single churn figure applied to average revenue, so if your customer base is highly uneven, run segments separately rather than blending them.
- What about expansion revenue and upsells?
- This model excludes them, which makes it conservative. Businesses with strong net revenue retention — above 100 percent, meaning expansion outweighs churn — have LTV substantially higher than this formula suggests. If that describes you, treat the output as a floor and model expansion separately.
- Why does a small churn improvement change LTV so much?
- Because LTV divides by churn, so the relationship is hyperbolic rather than linear. Moving from 3 percent to 2 percent monthly churn increases customer lifetime from 33 months to 50 and lifts LTV by half. Retention work usually returns more per dollar than acquisition work at the same spend.
- Is a 40-month customer lifetime realistic?
- It is what 2.5 percent monthly churn implies mathematically, but the arithmetic assumes a constant rate forever. Real churn is front-loaded — the first 90 days claim a disproportionate share — and it is rare to have data proving customers persist for three years. Treat long implied lifetimes with appropriate skepticism.
- How should LTV influence what I spend on acquisition?
- It sets a ceiling, not a budget. If LTV is $4,800 and you want a three-to-one ratio, CAC should stay under $1,600. But LTV arrives over years while CAC is paid today, so payback period should govern how aggressively you actually spend, particularly when cash is finite.
- Does LTV differ by acquisition channel?
- Substantially, and this is where the blended number misleads. Customers from referrals and organic search typically churn less than those from paid acquisition or discounted promotions. Calculate LTV per channel where you can — the ranking often reverses once retention is accounted for rather than signup volume alone.