How do I calculate LTV for SaaS?

The simplest LTV formula for SaaS is ARPU divided by churn rate. For example, if ARPU is $50 and monthly churn is 5%, LTV = $50 / 0.05 = $1,000. More advanced models factor in gross margin and discount rates.

What is a good LTV to CAC ratio?

A good LTV:CAC ratio is 3:1 or higher. This means you earn three times what you spend to acquire a customer. Ratios below 1:1 mean you lose money on each acquisition.

Why is LTV important for SaaS?

LTV helps you set marketing budgets, evaluate channels, and understand unit economics. It is essential for sustainable growth and investor discussions.

Customer Lifetime Value for SaaS Founders

What is Customer Lifetime Value?

Customer Lifetime Value (LTV) is the total revenue you expect from a single customer over their entire relationship with you. It helps you understand how much each customer is worth.

Why Customer Lifetime Value matters for SaaS founders

LTV tells you how much you can afford to spend acquiring a customer. The classic rule: LTV should be at least 3x your CAC. Without knowing LTV, you cannot evaluate marketing efficiency.

How to calculate Customer Lifetime Value

Divide your average revenue per user (ARPU) by your monthly churn rate. This simple formula works well for subscription businesses.

LTV = ARPU / Churn Rate

Free SaaS Calculator – No Signup Required

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Customer Lifetime Value Calculator

ARPU - Average Revenue Per User ($/month)

Monthly churn rate (%)

Example calculation

ARPU $50, Churn 5%
LTV = $50 / 0.05
$1,000

Result: $1,000

Each customer is worth $1,000 on average. You can spend up to about $333 to acquire them (for a 3:1 LTV:CAC ratio).

Benchmarks & best practices

Early-stage: Early-stage SaaS LTV varies widely. $300-$1,500 is common for SMB-focused products.
Healthy range: Healthy LTV depends on segment. B2B often targets $1,000+, enterprise $10,000+.
Warning range: Very low LTV with high CAC indicates a unit economics problem. Focus on retention or pricing.

Frequently Asked Questions

How do I calculate LTV for SaaS?: The simplest LTV formula for SaaS is ARPU divided by churn rate. For example, if ARPU is $50 and monthly churn is 5%, LTV = $50 / 0.05 = $1,000. More advanced models factor in gross margin and discount rates.
What is a good LTV to CAC ratio?: A good LTV:CAC ratio is 3:1 or higher. This means you earn three times what you spend to acquire a customer. Ratios below 1:1 mean you lose money on each acquisition.
Why is LTV important for SaaS?: LTV helps you set marketing budgets, evaluate channels, and understand unit economics. It is essential for sustainable growth and investor discussions.