A monthly churn that sounds low can leave your average customer with a lifespan of barely a year and a half. If your CAC takes nearly as long to pay back, margin per customer is razor-thin. Simulate it with your numbers.
In 30 seconds: Get LTV adjusted for gross margin, acquisition payback, and LTV:CAC ratio with the formula in plain sight. You'll know which segment deserves investment and which is burning capital. Deterministic calculation with auditable formulas. The result is indicative — adjust the assumptions to reflect your real operation.
Contribution per customer/month = ARPU × Gross margin
LTV = Monthly contribution ÷ Monthly churn
LTV:CAC = LTV ÷ CAC
Payback (months) = CAC ÷ Monthly contribution
Average lifespan (months) = 1 ÷ Monthly churn
Imagine a B2B SaaS with $500/month ARPU, 4% monthly churn, 75% gross margin and $1,500 CAC.
Monthly contribution = $500 × 0.75 = $375.
LTV = $375 ÷ 0.04 = $9,375.
LTV:CAC = $9,375 ÷ $1,500 = 6.25 — the customer returns more than six times what it cost to acquire them.
Payback = $1,500 ÷ $375 = 4 months. The customer covers CAC before month five and contributes profit for the remaining ~25-month average lifespan.
LTV:CAC below 1 means you lose money on each customer: you're subsidizing growth. LTV:CAC between 1 and 3 is fragile; above 3 is healthy; above 5 may indicate you're under-investing in acquisition.
A short payback with high churn is still a problem: the customer may leave before paying back CAC. Always cross payback against lifespan.
Reducing churn by 1 point usually has more impact on LTV than increasing ARPU by 10%, because LTV depends on the inverse of churn.
Gross margin moves LTV proportionally: if your margin drops from 80% to 60%, your LTV falls 25% with nothing else changing.
Before scaling paid acquisition: if LTV:CAC isn't above 3:1, scaling channels only amplifies losses.
When evaluating a new acquisition channel: compare its CAC and projected churn against the LTV of your existing cohorts.
To prepare for a fundraising round: investors expect to see LTV:CAC, payback and lifespan alongside MRR.
When considering a pricing change: raising ARPU moves LTV; lowering churn moves LTV much more.
To decide whether to invest in customer success: if reducing churn from 5% to 3% raises your LTV by 67%, the retention team's ROI is clear.
Using gross ARPU instead of contribution (ARPU × margin). Without gross margin, your LTV is inflated and your LTV:CAC is fictional.
Ignoring implicit lifespan. A 12-month payback with 10% churn (10-month lifespan) means most customers leave before paying CAC.
Calculating CAC only with marketing spend, omitting SDR/AE salaries and sales tooling. Realistic CAC must include all go-to-market cost.
Taking churn from an atypical month as the baseline. Use at least a 3-month average to smooth seasonality.
With ARPU $200, 3% churn and 80% margin, LTV is $5,333. If CAC is $1,200, the ratio lands at 4.4:1 — healthy. Reducing churn to 2% raises LTV to $8,000 and the ratio to 6.7:1.
With low ARPU ($15) and high churn (8%), LTV can be just $135 at 75% margin. For the model to work, CAC must be under $45 — only viable with organic or viral channels, not paid ads.
Streaming/education platforms with ARPU $25, 6% churn and 70% margin get an LTV of $292. Their key lever is reducing churn via engagement, not raising prices.
Monthly boxes with ARPU $40, 10% churn and 35% margin yield an LTV of $140. They need CAC under $45 — that's why they rely so heavily on referrals and reactivations.
Methodology and assumptions
LTV = (ARPU × Gross margin) ÷ Monthly churn · Average lifetime = 1 ÷ Churn
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This calculator turns four metrics of your SaaS — ARPU, monthly churn, gross margin and CAC — into the figures that summarize the business's unit economics: LTV (customer lifetime value), the LTV:CAC ratio, CAC payback and average customer lifetime.
It is built for SaaS and subscription founders and operators who need to know whether the model works at the unit level: what a customer is really worth, whether the cost of acquiring one is justified, and which lever — price, churn or margin — moves the result most.
Monthly contribution = ARPU × Gross margin
LTV = Monthly contribution ÷ Monthly churn
LTV:CAC = LTV ÷ CAC
Payback (months) = CAC ÷ Monthly contribution
Average lifetime (months) = 1 ÷ Monthly churn
The model assumes exponential decay: each month the same percentage of remaining customers leaves. Under that assumption, average lifetime is the inverse of churn and LTV is the sum of expected contributions.
LTV is computed on margin-adjusted contribution — not gross revenue — and in nominal value, without time discounting.
Hypothetical example for illustration. The numbers reproduce exactly when entered into the calculator on this page.
Worked example: a SaaS with $650 ARPU, 3.5% monthly churn, 72% gross margin and $5,200 CAC.
Monthly contribution: $650 × 0.72 = $468 per customer.
LTV: $468 ÷ 0.035 = $13,371.
LTV:CAC: $13,371 ÷ $5,200 = 2.6.
Payback: $5,200 ÷ $468 = 11.1 months. Average lifetime: 1 ÷ 0.035 = 28.6 months.
Reading: the customer pays back their acquisition in 11 months and stays 29 on average — viable, but with a thin margin: nearly 40% of the customer's life goes to paying their own CAC. Cutting churn to 2.5% would raise LTV to $18,720 and the ratio to 3.6 without touching price or costs.
An LTV:CAC ratio below 1 means each customer destroys value; between 1 and 3 the model is fragile, because the remaining margin must also cover the whole operation; above 3 acquisition sustains itself. An extremely high ratio isn't free either: it can mean you invest less than the market would let you capture.
Churn dominates the formula because it divides: going from 5% to 4% churn raises LTV by 25%, and from 4% to 3% by another 33%. Reducing churn almost always moves LTV more than an equivalent price increase.
Always cross payback against average lifetime: an 11-month payback with a 29-month lifetime leaves 18 months of net contribution; the same payback with 8% churn (a 12.5-month lifetime) barely lets the customer pay their CAC before leaving.
From theory to calculation
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Last updated: July 19, 2026
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