LTV Calculator: Customer Lifetime Value, LTV:CAC & Payback
Free customer lifetime value (LTV) calculator for SaaS. Get LTV, LTV:CAC ratio, and CAC payback period from ARPU, gross margin, churn, and acquisition cost.
Unit economics
What is customer lifetime value?
Customer lifetime value (LTV or CLV) estimates how much gross profit an average customer generates before they cancel. It tells you how much you can afford to spend acquiring a customer, and whether your growth engine makes money or burns it.
The LTV formula
LTV = (ARPU × gross margin) ÷ monthly churn rate
- ARPU: average monthly revenue per customer (get it from the MRR calculator)
- Gross margin: revenue minus the direct costs of serving customers (hosting, third-party APIs, payment fees, support) as a percentage of revenue. Software usually lands at 75–90%.
- Monthly churn: from the churn rate calculator
Dividing by churn is the same as multiplying by the average customer lifetime (1 ÷ churn).
Worked example
ARPU $40, gross margin 85%, monthly churn 3%:
- Monthly gross profit per customer = $40 × 0.85 = $34
- Average lifetime = 1 ÷ 0.03 = 33 months
- LTV = $34 ÷ 0.03 = $1,133
LTV:CAC ratio
LTV:CAC = LTV ÷ customer acquisition cost
CAC is everything you spend to win a customer (ads, sales salaries, tools, content) divided by the new customers it produced.
| LTV:CAC | What it means |
|---|---|
| Below 1:1 | Each customer loses money. Stop scaling spend. |
| 1:1 – 3:1 | Thin margins. Improve retention or pricing first. |
| About 3:1 | The widely cited healthy target |
| Above 5:1 | Very efficient. You may be under-investing in growth. |
CAC payback period
Payback (months) = CAC ÷ (ARPU × gross margin)
Payback measures how long it takes to earn back what you spent acquiring a customer. Bootstrapped founders often care about this more than LTV, because cash spent today has to come back before you run out. Under 12 months is healthy for SMB SaaS. Under 6 is excellent.
Caveats
- Early-stage LTV is a guess. With a few months of data, churn estimates are noisy, and low churn can produce absurd LTVs. Many teams cap lifetime at 3–5 years.
- Use gross margin, not revenue. Revenue-based LTV overstates what a customer is really worth.
- Segment it. LTV for annual customers on a Pro plan is very different from monthly Starter customers.
How to increase LTV
Lower churn (the biggest lever), raise prices, add expansion revenue like seats or usage tiers, and push annual plans. See how to price your SaaS and how to reduce churn.
Frequently asked questions
How do you calculate LTV for SaaS?
LTV = (average monthly revenue per customer × gross margin) ÷ monthly churn rate. With $50 ARPU, 80% margin, and 2% churn, LTV = $40 ÷ 0.02 = $2,000.
What is a good LTV to CAC ratio?
Around 3:1 is the common benchmark for a healthy SaaS business. Below 1:1 means you lose money on each customer. Above 5:1 can mean you could grow faster by spending more on acquisition.
What is a good CAC payback period?
Under 12 months is considered healthy for small-business SaaS, and under 6 months is excellent. Enterprise companies often accept 18–24 months because their customers stay longer.
Why does my LTV look unrealistically high?
Very low churn estimates from a short history make LTV explode. Cap the customer lifetime (for example at 36–60 months) until you have at least a year of retention data.