SaaS Churn Rate & Customer Lifetime Value (LTV) Calculator
Understanding Your SaaS Unit Economics
For any Subscription-as-a-Service (SaaS) business, understanding Churn Rate and Customer Lifetime Value (LTV) is critical for survival and scaling. These metrics dictate how much you can afford to spend on marketing and how long your business will remain solvent.
How to Calculate Churn Rate
Monthly Churn is the percentage of customers who leave your service during a specific timeframe. The formula used in this calculator is:
Churn Rate = (Lost Customers / Starting Customers) x 100
To find Lost Customers, we take: Starting Customers + New Customers - Ending Customers.
The Importance of LTV
LTV represents the total revenue a business can expect from a single customer account throughout the business relationship. The higher the LTV, the more profitable the company. Our calculator factor in Gross Margin to provide a "Net LTV," which is more accurate for determining your actual contribution margin.
Example Calculation
If you start the month with 1,000 customers, gain 200 new ones, and end with 1,100, it means you lost 100 customers.
- Churn Rate: (100 / 1,000) = 10%
- Avg. Lifetime: 1 / 0.10 = 10 months
- If ARPU is $100: LTV = $100 * 10 = $1,000 (Gross)
3 Ways to Improve Your Metrics
- Increase ARPU: Upsell existing customers to higher tiers or add-on features.
- Reduce Churn: Improve onboarding and customer success initiatives to keep users active.
- Optimize Margin: Lower server costs or automate support to increase the Gross Margin percentage.