SaaS LTV Calculator

Understanding SaaS Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV) represents the total gross profit a SaaS company expects to generate from a single customer relationship over its entire duration. LTV is one of the most critical unit economic metrics for subscription and SaaS businesses.

SaaS LTV Calculation Formula

The standard monthly formula for SaaS Customer Lifetime Value is:

$$\text{LTV} = \frac{\text{ARPU} \cdot \text{Gross Margin \%}}{\text{Monthly Churn Rate \%}}$$

Where:

• $\text{ARPU}$ is the Average Revenue Per User (or Monthly Recurring Revenue per account)
• $\text{Gross Margin \%}$ is the cost-of-goods-sold efficiency percentage ($\text{Gross Profit} / \text{Revenue}$)
• $\text{Monthly Churn Rate \%}$ is the percentage of customers canceling their subscription each month
• $$\text{Customer Lifespan} = \frac{1}{\text{Monthly Churn Rate}}$$

Evaluating LTV to CAC Ratio

Comparing Customer Lifetime Value ($\text{LTV}$) against Customer Acquisition Cost ($\text{CAC}$) determines sales and marketing unit economic health:

• LTV : CAC < 1.0: Losing money on every acquired customer.
• LTV : CAC = 3.0: Ideal target ratio for healthy, scalable SaaS growth.
• LTV : CAC > 5.0: Under-investing in customer growth and marketing channels.