What Is Your Customer Lifetime Value (and Is It Enough)?
What this calculates
This calculator works out customer lifetime value the way SaaS operators actually use it, adjusted for gross margin rather than raw revenue, then sets that figure against your acquisition cost and payback period. Sivan Kadosh, a fractional CPO for B2B SaaS founders, built it. Using it on saasfractionalcpo.com costs nothing and needs no account.
A SaaS company with $250 monthly revenue per account, 2.5 percent monthly churn and 80 percent gross margin has a customer lifetime value of $8,000 over an average customer lifetime of 40 months.
Your numbers
The account
Acquisition
Results update as you type. Nothing is sent anywhere, the calculation runs in your browser.
Your CLV
Live$8,000
over 40 months, gross-margin adjusted
- Simple CLV, before margin
- $10,000
- Average customer lifetime
- 40 months
- LTV : CAC
- 2.5×
- CAC payback
- 16 months
- CLV at 1.5% churn
- $13,333
Watch
The ratio sits below the 3 to 1 line and the acquisition cost takes longer than a year to come back, so growth here is funded by patience rather than by the customers themselves. Churn is the lever with the most leverage on this page, because it moves lifetime value and payback at the same time without touching what you spend.
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Thirty minutes on whether churn, price or margin is the cheapest thing to move first.
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How is this calculated?
Monthly churn sets how long an account lasts. One divided by the churn rate is the average lifetime in months, and lifetime value is the gross profit that account produces over that period. The version most calculators show uses revenue instead of gross profit, which counts money you never keep. Both figures appear here so the gap between them is visible.
Formula
Average customer lifetime = 1 ÷ monthly churn rate Simple CLV = ARPA ÷ monthly churn rate Gross-margin CLV = (ARPA × gross margin) ÷ monthly churn rate LTV : CAC = gross-margin CLV ÷ CAC CAC payback = CAC ÷ (ARPA × gross margin) The two benchmarked figures are locked together: LTV:CAC multiplied by payback always equals one divided by the churn rate.
- Churn is a constant monthly hazard applied to every account equally. Real cohorts churn hardest in the first quarter and then flatten, which makes this understate accounts that survive their first year.
- Gross margin is revenue minus cost of revenue: hosting, third-party fees and the support that scales with customer count. Sales and marketing are not in it, because they are the acquisition cost on the other side of the ratio, which the Customer Acquisition Cost Calculator works out fully loaded.
- Expansion revenue is excluded. If your net revenue retention runs above 100 percent this figure is a floor rather than an estimate, and the Unit Economics Calculator is the closer fit.
- The headline number is gross-margin adjusted. Simple CLV is shown next to it only so the size of the difference is visible, never as the number to quote.
- No discounting is applied to future cash. Over a 40 month lifetime a discount rate would reduce the figure, and at that horizon the churn assumption is the larger source of error anyway.
When this number misleads
One blended CLV across a self-serve tier and an enterprise tier describes neither of them. The two usually differ by an order of magnitude on both sides of the ratio, and the average sits in a gap where no actual customer lives. Run this once per segment before you act on it. If the two answers disagree about whether acquisition is working, the blended number was hiding the disagreement rather than resolving it, and reducing churn in SaaS is where the segment-level version of this usually leads.
What is a good LTV to CAC ratio?
Lifetime value on its own says nothing. It becomes a judgment only next to what a customer costs to win and how long that money takes to come back, which is why both of those sit in the table below rather than the CLV figure itself.
| Metric | Strong | Acceptable | Warning |
|---|---|---|---|
| LTV to CAC | 3 to 1 or better | 2 to 1 up to 3 to 1 | Under 2 to 1 |
| CAC payback | Under 12 months | 12 to 18 months | Over 18 months |
Both lines come from David Skok’s SaaS Metrics 2.0, which is where the 3 to 1 rule originates. His guideline for a successful SaaS business is that the ratio should be higher than 3, and on payback he writes that we suggest that Months to Recover CAC should be less than 12 months.
Skok attaches two caveats to his own numbers, and both are worth carrying. The payback guideline was written in 2011, when capital was scarce. Many enterprise SaaS businesses now run recovery periods around twenty months and do well. On the upside he notes that the best businesses are sometimes as high as 7 or 8
.
Which brings me to the one figure on this page that is mine rather than his. In my engagements a ratio far above 3 to 1, say five or more, usually means acquisition is underfunded and there is growth being left alone that the unit economics would comfortably pay for. That is practitioner guidance, not research, and it points the other way from Skok’s own note about 7 and 8. I keep both in view because a high ratio is genuinely good news and genuinely worth interrogating, and which of those it is depends on whether growth is slowing at the same time.
The same four inputs drive a wider question about whether the model works at all, which the SaaS Unit Economics Calculator answers by putting payback and the ratio side by side with a curve of cumulative profit per customer.
Questions founders ask about this
What is the formula for customer lifetime value in SaaS?
Average revenue per account multiplied by gross margin, divided by the monthly churn rate. The churn rate does double duty here, because one divided by it is also the average number of months a customer stays. Dividing by a smaller churn rate produces a longer life and a larger value, which is why the number is so sensitive to retention.
Why should CLV be adjusted for gross margin?
Because revenue is not money you keep. Hosting, third-party fees and support all come out before anything reaches the bottom line, so a lifetime value built on revenue counts cash that was never yours. At an 80 percent margin the unadjusted figure overstates by a fifth. At 50 percent it doubles the answer.
What is a good LTV to CAC ratio?
David Skok’s SaaS Metrics 2.0, which is where the rule comes from, sets the guideline for a successful SaaS business at higher than 3. He also notes that the best businesses are sometimes as high as 7 or 8
. Below 2 the model is usually not working yet, whatever the growth rate says.
How does churn rate change customer lifetime value?
It changes it more than anything else on this page, because it sits in the denominator. Halving churn doubles both the lifetime and the value. That is why the lever metric here is churn rather than price, and why a retention project and a pricing project rarely deserve the same priority.
Is CLV the same as LTV?
The two names get used for the same thing, and this tool treats them as identical. Where people differ is in what goes into the calculation rather than what it is called. The distinction worth caring about is whether the figure is gross-margin adjusted, because that changes the answer far more than the label does.
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