SaaS Customer Lifetime Value (LTV) Calculator
Calculate your SaaS business health by measuring LTV, Churn, and Customer Lifespan.
Understanding SaaS LTV and Churn Rate
In the Software as a Service (SaaS) industry, Customer Lifetime Value (LTV) is the North Star metric. It represents the total amount of revenue a business can expect to earn from a single customer throughout their entire relationship. Understanding your LTV allows you to determine exactly how much you can afford to spend on customer acquisition (CAC).
The Core Formulas
To calculate these metrics correctly, we use three primary formulas:
- Customer Lifespan: 1 / Monthly Churn Rate
- LTV: ARPU (Average Revenue Per User) / Monthly Churn Rate
- Net LTV: (ARPU * Gross Margin %) / Monthly Churn Rate
Suppose your SaaS charges $100/month. Your monthly churn rate is 4%, and your gross margin is 80%.
1. Lifespan = 1 / 0.04 = 25 months.
2. Gross LTV = $100 / 0.04 = $2,500.
3. Net LTV = ($100 * 0.8) / 0.04 = $2,000.
Why Churn is the LTV Killer
Churn rate is the percentage of customers who cancel their subscriptions every month. Because LTV is calculated with Churn in the denominator, even a small increase in churn significantly reduces your customer's value. For instance, reducing churn from 5% to 2.5% doesn't just "help"—it doubles your LTV and effectively doubles the efficiency of your marketing spend.
What is a Good LTV:CAC Ratio?
A healthy SaaS business typically aims for an LTV:CAC ratio of 3:1 or higher. This means the value of the customer is three times what it cost to acquire them. If your ratio is 1:1, you are barely breaking even after accounting for operating expenses. If it's 5:1, you may be growing too slowly and should consider spending more on marketing.