Customer Lifetime Value Calculator Formula

Understand the math behind the customer lifetime value calculator. Each variable explained with a worked example.

Use the Customer Lifetime Value Calculator

Formulas Used

Avg Customer Lifespan

avg_lifespan_months = churn_rate > 0 ? 1 / (churn_rate / 100) : 0

Lifetime Revenue

ltv_revenue = churn_rate > 0 ? avg_revenue / (churn_rate / 100) : 0

Customer Lifetime Value (LTV)

ltv = churn_rate > 0 ? avg_revenue * (gross_margin_pct / 100) / (churn_rate / 100) : 0

Variables

VariableDescriptionDefault
avg_revenueAvg Monthly Revenue Per Customer(USD)50
gross_margin_pctGross Margin(%)70
churn_rateMonthly Churn Rate(%)3

How It Works

How to Calculate Customer Lifetime Value

Formula

LTV = ARPU x Gross Margin / Monthly Churn Rate

Where:

  • ARPU = Average Revenue Per User (monthly)
  • Gross Margin = percentage of revenue that is gross profit
  • Churn Rate = percentage of customers lost per month

    • Average customer lifespan in months = 1 / Monthly Churn Rate. LTV multiplies lifetime revenue by gross margin to get the profit contribution.

    Worked Example

    A subscription business with $50/month ARPU, 70% gross margin, and 3% monthly churn.

    avg_revenue = 50gross_margin_pct = 70churn_rate = 3
    1. 01Average lifespan = 1 / 0.03 = 33.3 months
    2. 02Lifetime revenue = $50 x 33.3 = $1,666.67
    3. 03LTV = $50 x 0.70 / 0.03 = $1,166.67

    Frequently Asked Questions

    Why is LTV important?

    LTV tells you how much you can profitably spend to acquire a customer. The common rule is LTV should be at least 3x your Customer Acquisition Cost (CAC). A high LTV also indicates strong product-market fit.

    How do I improve LTV?

    Three strategies: (1) Reduce churn through better onboarding and product experience, (2) Increase ARPU through upsells and price optimization, (3) Improve gross margin through operational efficiency.

    Learn More

    Guide

    Understanding SaaS Metrics

    A comprehensive guide to SaaS metrics including MRR, ARR, churn rate, LTV, CAC, and the Rule of 40. Learn what to track and how to benchmark your SaaS business.

    Ready to run the numbers?

    Open Customer Lifetime Value Calculator