Quick Answer

A customer paying $100/month with a 24-month average lifespan and 70% gross margin has an LTV of $1,680. With a $500 acquisition cost, the LTV:CAC ratio is 3.4:1.

Avg. Monthly Revenue per Customer ($)

Avg. Customer Lifespan (months)

Gross Margin (%)

Customer Acquisition Cost ($)

Optional. Used to calculate LTV:CAC ratio.

Common Examples

Input	Result
$100/month, 24 months, 70% margin, $500 CAC	LTV = $1,680, LTV:CAC = 3.4:1
$50/month, 36 months, 80% margin, $200 CAC	LTV = $1,440, LTV:CAC = 7.2:1
$200/month, 18 months, 65% margin, $1,000 CAC	LTV = $2,340, LTV:CAC = 2.3:1
$500/month, 12 months, 75% margin, $2,000 CAC	LTV = $4,500, LTV:CAC = 2.3:1
$75/month, 48 months, 85% margin, $150 CAC	LTV = $3,060, LTV:CAC = 20.4:1

How It Works

This calculator uses the standard LTV formula for subscription and recurring-revenue businesses:

LTV = Average Monthly Revenue x Average Customer Lifespan x (Gross Margin / 100)

Where:

• Average Monthly Revenue = the average revenue generated per customer per month (e.g., subscription price or average order value)
• Average Customer Lifespan = how many months a typical customer remains active before churning
• Gross Margin = the percentage of revenue remaining after direct costs of service delivery

LTV:CAC Ratio:

LTV:CAC = LTV / Customer Acquisition Cost

This ratio measures the return on customer acquisition investment. The industry benchmark for a healthy SaaS business is an LTV:CAC ratio of 3:1 or higher, meaning every dollar spent acquiring a customer generates at least three dollars in gross-margin-adjusted lifetime revenue.

• 3:1 or higher = generally considered healthy and sustainable
• 1:1 to 3:1 = the business is recovering acquisition costs but may lack sufficient margin for growth
• Below 1:1 = the business spends more to acquire a customer than it earns back, which is unsustainable

Net LTV:

Net LTV = LTV - Customer Acquisition Cost

This represents the profit generated per customer after accounting for the cost to acquire them.

Gross Margin Adjustment

Including gross margin in the LTV calculation is important because not all revenue translates to profit. A company with $100/month revenue but only 50% gross margin retains $50/month to cover operating expenses, sales costs, and profit. Without the margin adjustment, LTV would overstate the actual value of each customer.

Worked Example

A SaaS company charges $100/month per customer. The average customer stays for 24 months before canceling. The gross margin is 70% (after hosting, support, and direct service costs). Customer acquisition cost (marketing plus sales) averages $500 per new customer. LTV = $100 x 24 x 0.70 = $1,680. LTV:CAC = $1,680 / $500 = 3.4:1. Net LTV = $1,680 - $500 = $1,180. The 3.4:1 ratio exceeds the 3:1 benchmark, indicating a healthy unit economics model.

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Frequently Asked Questions

What is customer lifetime value (LTV)?

Customer Lifetime Value is the total gross-margin-adjusted revenue a business expects to earn from a single customer over the entire duration of the relationship. It helps businesses understand how much they can afford to spend on customer acquisition while remaining profitable.

What is a good LTV:CAC ratio?

The widely cited benchmark is 3:1 or higher. This means the lifetime value of a customer should be at least three times the cost to acquire that customer. Early-stage startups may temporarily operate below this ratio while scaling, but a ratio consistently below 1:1 signals that the business model is not sustainable.

How do I calculate average customer lifespan?

If you know your monthly churn rate, the average lifespan in months is approximately 1 / churn rate. For example, a 5% monthly churn rate implies an average lifespan of 1 / 0.05 = 20 months. Alternatively, you can calculate the average directly from historical customer data by measuring the time from sign-up to cancellation across your customer base.

Why include gross margin in the calculation?

Gross margin adjusts for the direct costs of delivering your product or service. Revenue alone overstates the value because a portion goes to hosting, support, third-party tools, and other variable costs. Including gross margin gives a more accurate picture of the actual profit generated per customer.

What is customer acquisition cost (CAC)?

CAC is the total cost of acquiring a new customer, including marketing spend, sales team salaries and commissions, advertising costs, and any other expenses directly tied to bringing in new customers. It is typically calculated as total acquisition spending divided by the number of new customers acquired in a given period.