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LTV Calculator

Calculate your Customer Lifetime Value, average customer lifetime, monthly gross profit, and LTV:CAC guideline to optimize your acquisition and retention strategy.

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Average monthly revenue per customer (ARPU)

Percentage of revenue remaining after cost of goods sold

Percentage of customers who cancel each month

Enter your subscription metrics and click Calculate to see your customer lifetime value.

How LTV Works

What is Customer Lifetime Value?

Customer Lifetime Value (LTV) estimates the total revenue a business can expect from a single customer over the entire relationship. It combines how much a customer pays each month, how long they stay, and the profit margin on their payments into one forward-looking metric that drives acquisition, retention, and pricing decisions.

How to Calculate LTV

The gross margin LTV formula is:

  • Average Customer Lifetime = 1 / Monthly Churn Rate
  • Monthly Gross Profit = ARPU x Gross Margin Percentage
  • LTV = Monthly Gross Profit x Average Customer Lifetime

For example, if your ARPU is $100/month, your gross margin is 70%, and your monthly churn is 5%, then: Average Lifetime = 1 / 0.05 = 20 months. Monthly Gross Profit = $100 x 0.70 = $70. LTV = $70 x 20 = $1,400.

A simpler version (without gross margin) is: LTV = ARPU / Monthly Churn Rate. This gives $100 / 0.05 = $2,000 but overstates the value because it ignores the costs of delivering the service.

The LTV:CAC Ratio

The most important use of LTV is comparing it to your Customer Acquisition Cost (CAC). The LTV:CAC ratio tells you whether your unit economics are sustainable. A 3:1 ratio is the standard benchmark: for every dollar spent acquiring a customer, you should earn at least three dollars in lifetime value. If your LTV is $1,400, your CAC should be no more than about $467.

Why LTV Matters

LTV helps you determine how much to spend on marketing and sales, which customer segments are most valuable, whether pricing changes improve profitability, and how churn reduction impacts long-term revenue. Companies that understand and optimize LTV consistently outperform those that focus solely on short-term revenue metrics.

Frequently asked questions

Customer Lifetime Value (LTV or CLV) is the total revenue a business can expect from a single customer account over the entire duration of their relationship. It accounts for the average revenue per customer, how long they stay (based on churn rate), and the gross margin on that revenue. LTV helps businesses understand the long-term value of acquiring and retaining each customer, and is essential for making informed decisions about marketing spend, product investment, and growth strategy.

A healthy LTV:CAC ratio is generally 3:1 or higher, meaning the lifetime value of a customer should be at least three times the cost to acquire them. A ratio below 1:1 means you are spending more to acquire customers than they generate in revenue, which is unsustainable. A ratio between 1:1 and 3:1 may be acceptable for fast-growing companies investing heavily in market share, but long-term profitability requires reaching 3:1 or better. Some highly efficient businesses achieve ratios of 5:1 or higher.

There are three main levers to improve LTV: (1) Increase ARPU by upselling premium plans, adding features, or raising prices. (2) Reduce churn by improving your product, customer success, onboarding, and support. Even a small reduction in monthly churn dramatically increases average customer lifetime. (3) Improve gross margins by reducing the cost of delivering your service through automation, better infrastructure, or economies of scale. Focus on churn reduction first, as it has the biggest compounding impact on LTV.

The most common LTV formulas are: (1) Simple LTV = ARPU / Monthly Churn Rate, which gives a quick estimate without factoring in margins. (2) Gross Margin LTV = ARPU x Gross Margin x Average Lifetime, which accounts for the profitability of each dollar earned. (3) DCF-based LTV discounts future revenue to present value using a discount rate. (4) Cohort-based LTV tracks actual customer groups over time for historical accuracy. For most startups, the gross margin method provides a reliable and actionable estimate.

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