Customer Lifetime Value Calculator
Lifetime value per customer and LTV:CAC ratio
A customer who spends $80 four times a year for three years, at a 60% gross margin, is worth $576 of gross profit, or $192 a year. Enter your own average purchase, frequency, lifespan and margin to calculate customer lifetime value, or use monthly churn instead of years, and add CAC for the LTV:CAC ratio.
What LTV is actually for
Used as an LTV calculator, this answers one question: what is a customer worth over the whole time they stay with you?
This customer lifetime value calculator is also a clv calculator, since the two abbreviations describe the same measure.
Customer lifetime value is the total gross profit you expect from a customer across the whole relationship. Its purpose is narrow and important: it sets the ceiling on what you can afford to pay to acquire one.
LTV = average purchase × purchases per year × gross margin × years retained. Margin is the part people leave out, and leaving it out inflates the answer by however much your product costs to deliver.
At $80 per order, 4 orders a year, a 60% margin and 3 years, LTV is $576 and annual value is $192. Drop the margin and the figure collapses: the same customer at a 20% margin is worth $192 total, a third as much, on identical revenue.
Two ways to get the lifetime
The "years retained" input is the weakest part of any LTV calculation, because most businesses do not know it. Subscription businesses have a better route: they know their churn, and lifetime in months is simply 1 ÷ monthly churn.
Enter a monthly churn rate above and it overrides the years figure:
| Monthly churn | Implied lifetime | LTV |
|---|---|---|
| 2% | 50 months | $800 |
| 3% | 33.3 months | $533 |
| 5% | 20 months | $320 |
| 8% | 12.5 months | $200 |
| 10% | 10 months | $160 |
Halving churn from 4% to 2% doubles lifetime value on exactly the same product and pricing. That is why retention work usually beats acquisition work: it raises the ceiling on what you can spend to grow, rather than spending more under the existing ceiling. The churn rate calculator handles the conversions.
The LTV:CAC ratio
| CAC | Ratio | Payback | Reading |
|---|---|---|---|
| $576 | 1 : 1 | 36 mo | Losing money after overheads |
| $288 | 2 : 1 | 18 mo | Thin |
| $192 | 3 : 1 | 12 mo | The usual healthy target |
| $144 | 4 : 1 | 9 mo | Strong |
| $50 | 11.5 : 1 | 3.1 mo | Probably underspending on growth |
3:1 is the conventional target, and the reasoning behind it is rarely stated: gross profit has to cover not just acquisition but also product development, support, overheads and a margin. At 1:1 you break even on acquisition and lose money on everything else.
A very high ratio is not automatically good news. 11:1 usually means you could profitably spend far more on acquisition and are leaving growth on the table — the constraint is rarely that money is unavailable, it is that nobody has checked the ratio.
Payback period matters more than the ratio
The ratio ignores when the money arrives, and cash flow does not. A 3:1 ratio with a 36-month payback means you fund every customer for three years before breaking even, which is a financing problem regardless of how good the lifetime economics look.
- Under 12 months is generally considered healthy for SaaS.
- 12 to 18 months is workable with funding in place.
- Over 24 months means growth consumes cash faster than it generates it, and you are effectively lending to your own customers.
This is why fast-growing companies can be profitable per customer and still run out of money. The CAC payback calculator models it directly.
Where LTV estimates go wrong
- Using revenue instead of gross profit. The single most common error, and it overstates LTV by the whole cost of delivery.
- Averaging across very different customers. One enterprise account and a hundred trial users produce an average that describes nobody. Segment first.
- Assuming churn stays flat. It is front-loaded: most cancellations happen early, so a blended rate overstates the lifetime of customers who survive the first months.
- Projecting a lifetime longer than your company has existed. A three-year-old business claiming a five-year LTV is extrapolating, not measuring.
- Ignoring discounting. Profit five years out is worth less than profit today, and long-horizon LTVs overstate present value.
- Forgetting support and service costs that recur for the life of the customer, not just at acquisition.
A practical rule: cap the horizon at three years unless you have data beyond it, and use a segment-level figure rather than a company-wide one.
What the lifetime value assumes
LTV is average purchase × purchases per year × gross margin × years retained. Annual value per customer is the same without the years term.
- Gross profit, not revenue. The margin field is applied throughout, so the output is contribution rather than turnover.
- A monthly churn input overrides the years figure, deriving lifetime as 1 ÷ churn. Subscription businesses generally know churn and rarely know average retention in years, so this is the more reliable route.
- Payback period divides CAC by monthly gross profit, which assumes even revenue across the year.
- No discounting. Future profit is counted at face value, which overstates present value on long horizons. Cap the projection at about three years unless you have data beyond it.
- Not modelled: expansion revenue, referrals, segment differences, front-loaded churn, and ongoing support costs.
Reviewed September 2026.
Figures reviewed . Every worked example on this page is checked against the calculator above.
Customer Lifetime Value Calculator: frequently asked questions
How do you calculate customer lifetime value?
Multiply average purchase value by purchases per year, by gross margin, by years retained. At $80 per order, 4 orders a year, 60% margin and 3 years, LTV is $576.
Should LTV use revenue or profit?
Gross profit. Using revenue is the most common error and it overstates LTV by the entire cost of delivering your product. The same customer at a 20% margin is worth a third of one at 60%.
How do I calculate LTV from churn?
Lifetime in months is 1 ÷ monthly churn, so 4% churn implies 25 months. Multiply that by monthly gross profit per customer. Enter a churn rate above and it replaces the years input.
What LTV:CAC ratio should a SaaS business aim for?
Around 3:1. Gross profit has to cover product, support and overheads as well as acquisition, so 1:1 loses money overall. Much above 4:1 usually means you could profitably spend more on growth.
Can an LTV:CAC ratio be too high?
Yes. A 10:1 ratio generally means you are underinvesting in acquisition and leaving growth unclaimed, since you could spend considerably more per customer and still be well inside a healthy range.
Why does payback period matter more than the ratio?
Because the ratio ignores timing. A 3:1 ratio with a 36-month payback funds each customer for three years before breaking even, which consumes cash faster than it generates it however good the lifetime economics look.
How does reducing churn affect LTV?
Directly and powerfully. Halving monthly churn from 4% to 2% doubles the implied lifetime and therefore doubles LTV, on identical pricing and product. That is why retention work usually beats acquisition work.
How far ahead should LTV project?
No further than you have data for, and rarely beyond three years. A young company claiming a five-year lifetime is extrapolating. Profit far in the future is also worth less in present-value terms.