SaaS Churn & Customer Lifetime Value (CLV) Calculator
Understanding SaaS Churn and CLV
In the Software as a Service (SaaS) industry, growth is not just about acquiring new users; it is about keeping them. Churn rate and Customer Lifetime Value (CLV) are the two most critical metrics for determining the long-term viability of your subscription business.
How to Calculate Revenue Churn
Monthly Revenue Churn measures the percentage of Monthly Recurring Revenue (MRR) lost from existing customers due to cancellations or downgrades. The formula is:
Revenue Churn % = (Lost MRR / Starting MRR) x 100
What is Customer Lifetime Value (CLV)?
CLV represents the total net profit a business can expect from a single customer account throughout the entire relationship. High CLV allows you to spend more on customer acquisition (CAC) while remaining profitable. The basic formula used in this calculator is:
CLV = ARPU x Gross Margin % x (1 / Churn Rate)
Realistic Example
If your SaaS starts the month with $10,000 MRR and loses $500 to cancellations, your churn rate is 5%. If your Average Revenue Per User (ARPU) is $100 and your gross margin is 80%, your CLV would be calculated as follows:
- Churn Rate: 5%
- Customer Lifetime: 1 / 0.05 = 20 months
- CLV: $100 * 0.80 * 20 = $1,600
This means every new customer you sign is worth $1,600 in gross profit over their lifetime. If your cost to acquire that customer is $500, you have a healthy 3.2:1 LTV/CAC ratio.