LTV Calculator

The standard formula for SaaS LTV is: LTV = (ARPA x Gross Margin) / Monthly Churn Rate. ARPA is your average revenue per account per month, gross margin is the percentage of revenue remaining after cost of goods sold, and churn rate is the percentage of customers who cancel each month.

A ratio of 3:1 or higher is generally considered healthy for SaaS businesses. This means you earn $3 in lifetime value for every $1 spent acquiring a customer. Below 1:1 means you are losing money on each customer. Above 5:1 may indicate you are under-investing in growth.

Because LTV is inversely proportional to churn rate. Cutting your churn rate in half doubles your customer lifetime and approximately doubles your LTV. Small percentage-point improvements compound into large dollar amounts, especially as your customer base grows.

This calculator uses monthly churn rate. If you only know your annual churn rate, you can approximate the monthly rate by dividing by 12 (for small churn rates) or using the formula: Monthly Churn = 1 - (1 - Annual Churn)^(1/12) for a more precise conversion.

Most SaaS companies have gross margins between 70-85%. This includes hosting costs, third-party API costs, and customer support costs directly tied to service delivery. If you are unsure, 75-80% is a reasonable estimate for a typical SaaS business.

This calculator uses a simplified model that does not account for expansion revenue (upsells, cross-sells, seat expansion). If your customers tend to grow over time, your actual LTV will be higher than this estimate. For a more precise calculation, use net revenue churn instead of logo churn.