Predict Your Profit: The Ultimate Customer Lifetime Value (LTV) Calculator
In business, not all customers are created equal. Customer Lifetime Value (LTV), also known as CLV, is the single most important metric for understanding the long-term health of your company. It tells you exactly how much revenue a single customer will generate before they leave. Knowing this number empowers you to make smarter decisions about how much you can afford to spend on marketing (CAC) and retention.
Choose Your Calculation Model
Different businesses require different formulas. Our tool supports three industry-standard models:
- Retention Based (Best for SaaS): This uses your Churn Rate to predict lifespan. If 5% of customers leave every month, the average customer stays for 20 months (1 / 0.05).
Formula: ARPU / Churn Rate - Simple (Fixed Contract): Best for agencies or consulting. If you sign a 12-month contract at $1,000/month, the LTV is simply $12,000.
- Advanced (The 'True' Value): This creates a Discounted Cash Flow (DCF) model. It factors in your Gross Margin (profit after server costs/support) and the Discount Rate (the devaluation of money over time due to inflation). This is the number investors want to see.
The Golden Ratio: LTV to CAC
Calculating LTV is useless if you don't compare it to your Customer Acquisition Cost (CAC). This calculator includes an optional CAC field to generate your efficiency ratio:
- 1:1 (Danger Zone): You are losing money. You spend $100 to get a customer worth $100.
- 3:1 (Healthy): The industry benchmark. You spend $100 to get a customer worth $300.
- 5:1 (Gold Mine): Your business is highly profitable, and you should likely spend more on marketing to grow faster.
Why Churn is the LTV Killer
Small changes in Churn Rate have massive impacts on LTV.
Example:
At 5% Churn, a $50/mo customer is worth $1,000.
At 4% Churn, that same customer is worth $1,250.
Reducing churn by just 1% increased your revenue by 25%. This is why retention is often cheaper than acquisition.
Frequently Asked Questions
What is ARPU?
Average Revenue Per User. It is your total monthly revenue divided by your total number of active customers. If you have a tiered pricing model ($10, $50, $100 plans), ARPU gives you the weighted average.
What is a good Discount Rate?
For SaaS and tech startups, a 10% annual discount rate is standard. This accounts for inflation and the "opportunity cost" of capital (the risk that the future money might never arrive).
How do I calculate Churn Rate?
Take the number of customers who cancelled this month and divide it by the total customers you had at the start of the month.
(5 cancellations / 100 starting customers = 5% Churn).