What is customer lifetime value (LTV)?
Customer lifetime value is the total gross profit you expect from a customer over the entire relationship. For B2B SaaS it is driven by three inputs: how much each account pays (ARPA), your gross margin, and how long customers stay (the inverse of churn). LTV is the number that tells you how much you can afford to spend acquiring a customer, which is why it is always read alongside CAC.
How this calculator works
One formula, no black box:
The formula: Avg lifespan (months) = 1 ÷ monthly churn rate Monthly gross profit = ARPA × gross margin Customer LTV = Monthly gross profit ÷ monthly churn rate LTV:CAC ratio = LTV ÷ CAC
Because lifespan is 1 divided by churn, a small drop in churn produces a large jump in LTV. Cutting monthly churn from 4% to 2% doubles the average customer lifespan and doubles LTV, with no change to pricing.
What is a good LTV:CAC ratio?
| LTV:CAC | Read | What it means |
|---|---|---|
| Below 1:1 | Losing money | You spend more to acquire a customer than they are worth. |
| ~3:1 | Healthy | The widely-cited benchmark for efficient B2B SaaS growth. |
| 5:1 or higher | Underinvesting | Efficient, but you may be leaving growth on the table. |
How to increase LTV
- Lower churn. The highest-leverage lever, because lifespan is the inverse of churn. Retention compounds.
- Grow ARPA. Expansion revenue, upsells and pricing raise the value of every customer month.
- Improve gross margin. More of each dollar becomes lifetime value.
- Acquire better-fit customers. ICP-aligned customers from organic search tend to retain and expand more than paid or discount-driven signups.
Frequently asked questions
How do you calculate LTV for SaaS?
LTV = (ARPA × gross margin) ÷ monthly churn rate. ARPA × gross margin is the monthly gross profit per customer; dividing by churn extends it across the average lifespan (1 ÷ churn). For example, $500 ARPA at 80% margin and 3% monthly churn gives about $13,333.
What is a good LTV:CAC ratio for B2B SaaS?
About 3:1 is the healthy benchmark. Below 1:1 you lose money on every customer; 5:1 or higher can mean you are underinvesting in growth.
What is the difference between LTV and CLV?
They are the same metric. LTV and CLV both describe the total gross profit expected from a customer over the relationship; the calculation is identical.
How can I increase customer lifetime value?
Lower churn (it lengthens lifespan fastest), increase ARPA through expansion and pricing, and improve gross margin. Retention is usually the highest-leverage lever because it compounds.