What is customer lifetime value?
Customer lifetime value (LTV) is what a customer is worth to your business over the whole time they stay a customer. Two distinctions matter before you use the number.
- Historical or estimated. Historical LTV is what customers have actually paid so far. Estimated LTV is what a typical customer is expected to pay over their whole lifetime, from a model like the one above.
- Revenue or gross profit. Revenue LTV is everything a customer pays, before any costs. Gross-profit LTV is what's left after the direct cost of serving them, and it's the one to weigh against acquisition cost.
Customer lifetime value formula
For a subscription business, the simplest model uses three inputs: average monthly revenue per customer (ARPU), monthly customer churn and gross margin.
A worked example: a customer pays $49 a month and 5% of customers leave each month. Their modeled lifespan is 1 ÷ 0.05 = 20 months, revenue LTV is $49 ÷ 0.05 = $980, and at an 80% gross margin, gross-profit LTV is $980 × 0.80 = $784.
The 1 ÷ churn step comes from assuming the same share of customers leaves every month. Use customer churn (the share of customers who stop paying), not revenue churn, which also moves with upgrades and downgrades. The model also assumes stable revenue per customer, no reactivations or expansion, no discounting of future money and a consistent mix of customers. It describes an average customer, not any one of them: 20 months isn't how long a given subscription will last.
LTV vs CLV
They're the same idea under two abbreviations: LTV is more common in SaaS, CLV (or CLTV) in retail and marketing. What varies is the definition behind the number. Some teams mean revenue, some gross profit; some subtract acquisition cost or discount future cash. Before comparing two figures, check which one each is.
What is a good LTV:CAC ratio?
You'll often see 3:1 quoted as a target. Treat it as a rule of thumb, not a standard. Whether a ratio is good enough depends on:
- Gross margin. The same revenue LTV supports much less acquisition spend at 40% margin than at 85%.
- Payback and cash flow. A 3:1 ratio that takes 30 months to recover acquisition cost strains cash far more than one that pays back in five.
- Retention. A ratio built on very low churn assumes customers stay for years. If that churn figure comes from a few months of data, the ratio is fragile.
- Growth stage and strategy. A business investing for growth may accept a lower ratio; a very high one can mean it's spending too little on acquisition.
- Channel and sales cycle. A blended ratio can hide a channel that loses money behind one that's very efficient.
- Capital constraints. How long you can wait for payback depends on the cash and funding you have.
This calculator divides gross-profit LTV by CAC, so it compares what a customer contributes with what they cost to win. A ratio built on revenue LTV looks better, but the two aren't comparable.
How churn affects LTV
Because lifespan is 1 ÷ churn, LTV doesn't change in a straight line as churn changes. At $49 a month, cutting churn from 6% to 5% adds about $163 of revenue LTV ($816.67 to $980). Cutting it from 2% to 1% doubles it, from $2,450 to $4,900.
As churn approaches zero, the modeled lifespan runs to decades, and at 0% the formula has no finite answer. That's why the calculator won't show an LTV at 0% churn, and why low-churn results deserve the most skepticism: if a few more customers leave, the result can halve. Young products with little history have noisy churn, so try a range of rates rather than one.
How to calculate CAC payback
Divide acquisition cost by the gross profit a customer brings in each month: $200 ÷ ($49 × 80%) = $200 ÷ $39.20 ≈ 5.1 months. It's a run rate. It assumes the customer stays and contributes the same gross profit every month until the cost is recovered. It doesn't account for:
- customers who churn before payback;
- discounting;
- billing timing (an annual plan paid upfront recovers cash on day one);
- refunds, expansion or contraction;
- delayed activation or extra servicing costs.
If payback comes out longer than the modeled lifespan, the calculator says so: under this model, the average customer leaves before repaying their acquisition cost.
LTV for SaaS vs e-commerce
SaaS and other subscriptions bill on a schedule, and customers leave by cancelling. Customer churn and renewals set how long a customer stays, which is what this model is built on.
E-commerce customers don't cancel; they just stop buying. LTV there usually comes from average order value × purchase frequency × customer lifespan: $60 orders, four times a year, for three years is $720 of revenue. A monthly churn rate only makes sense once you've defined what counts as an active customer, so this calculator is designed for subscription-style businesses first.
How SuprAnalytics helps with customer revenue
The calculator works from numbers you type in. SuprAnalytics works from payments you've actually received. Connect Stripe, Polar, Lemon Squeezy, Paddle or Dodo Payments with a webhook, or send payments from any provider with the Payment API. Each payment is recorded, with renewals marked; a full refund takes a payment out of revenue, and how partial refunds count depends on the provider (see renewals and refunds).
Its Lifetime value report takes the customers acquired in a period and shows everything they've paid since, renewals included and refunds left out. It groups them by where they first came from: channel, source, campaign, country, device or a saved segment. That grouping always uses the customer's first visit, whatever the website's attribution setting. Elsewhere, revenue reports credit the first or last visit as you choose, last touch by default (see revenue attribution). Customers whose payments couldn't be matched to a visit are grouped as Unknown. It's revenue already received, not a forecast (see subscription revenue).
SuprAnalytics doesn't calculate churn, CAC, CAC payback, MRR, ARR or retention cohorts, and this calculator doesn't read your SuprAnalytics data. Bring churn from your billing provider and CAC from your marketing spend.
Common LTV calculation mistakes
- Treating revenue LTV as profit. It's before every cost; gross-profit LTV is before acquisition and overhead, and neither is net profit.
- Using revenue churn for lifespan. Expansion can push revenue churn below customer churn, even negative, which breaks 1 ÷ churn.
- Assuming churn stays constant forever. Churn is often higher in the first months and lower among long-time customers.
- Ignoring refunds. Refunded revenue was never kept.
- Leaving out acquisition cost. A high LTV means little without knowing what it cost to win each customer.
- Comparing incompatible cohorts. Customers from a launch week and from paid search can behave very differently.
- Mixing monthly and annual values. Monthly ARPU needs monthly churn; annual plans need converting first.
- Treating modeled LTV as guaranteed revenue. It's an estimate under assumptions, not money owed.
- Assuming historical LTV equals projected LTV. What past customers paid so far undercounts those still paying, and future customers may differ.
More on revenue: Revenue attribution · Subscription revenue · Stripe revenue attribution · Pricing