SaaS Customer Lifetime Value (LTV) Calculator
Calculate the total worth of a customer to your business over the duration of their relationship.
What is SaaS LTV?
Customer Lifetime Value (LTV) is a critical metric for subscription-based businesses. It represents the total amount of money a customer is expected to spend with your company during their entire relationship. Understanding LTV helps SaaS founders determine how much they can afford to spend on customer acquisition (CAC) and predicts future cash flow.
How to Calculate SaaS LTV
The standard formula used in this calculator is:
LTV = (ARPU × Gross Margin %) / Monthly Churn Rate
- ARPU: Average Revenue Per User. If your customers pay different amounts, take the total monthly recurring revenue (MRR) and divide it by the number of customers.
- Churn Rate: The percentage of customers who cancel their subscription each month.
- Gross Margin: The percentage of revenue remaining after deducting the cost of goods sold (COGS), such as hosting fees and support costs.
Real-World Example
Imagine a SaaS company called "CloudHelper":
- ARPU: $50 per month
- Churn Rate: 2% per month
- Gross Margin: 80%
In this case, the calculation would be: ($50 × 0.80) / 0.02 = $2,000. This means every new customer CloudHelper acquires is worth approximately $2,000 in gross profit over time.
Why Churn is the "LTV Killer"
Small changes in churn have a massive impact on LTV. If CloudHelper in the example above reduces churn from 2% to 1%, their LTV doubles to $4,000. Conversely, if churn increases to 4%, the LTV drops to $1,000. This is why retention is often more valuable than new acquisition for mature SaaS companies.