What is Customer Lifetime Value (LTV)?
LTV (also written CLV) is the total gross profit a business expects to earn from a customer over the entire relationship. It is calculated as: LTV = (Average Revenue per Customer × Gross Margin %) ÷ Monthly Churn Rate. It tells you the maximum you should spend to acquire a customer and still be profitable.
How does churn rate affect LTV?
Churn rate has a dramatic impact on LTV. Reducing monthly churn from 5% to 3% increases average customer lifespan from 20 months to 33 months — a 65% increase in LTV even with no revenue changes. Retention is often the highest-leverage lever in SaaS and subscription businesses.
What is the difference between LTV and LTV on a per-cohort basis?
This calculator uses a blended average across all customers. Cohort-based LTV tracks customers who started in the same month separately, which is more accurate for businesses with improving retention or rising ARPU over time. For planning purposes, blended LTV is a useful starting point.
What gross margin should I use?
Use gross margin — revenue minus the direct cost of delivering your product or service. For SaaS, that's typically 70–90%. For professional services, 40–60%. For e-commerce, 20–50%. Do not use net margin, which includes overhead and would understate LTV.