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Lifetime Value Calculator
Use this free lifetime value calculator to work out what one customer is worth to your business. Enter average monthly revenue per customer, gross margin, and customer lifespan — or a churn rate — plus what it costs to acquire a customer, and get the LTV, the LTV to CAC ratio, and the payback time.
Lifespan and churn are linked: lifespan = 100 ÷ churn. Change one and the other updates.
| Figure | Amount |
|---|---|
| Lifetime value (LTV) | $720.00 |
| Monthly gross profit per customer | $30.00 |
| LTV to CAC ratio | 4.8 : 1 |
| CAC payback period | 5.0 months |
| Net value per customer (LTV − CAC) | $570.00 |
| Total LTV of 100 customers | $72,000.00 |
How it works
Customer lifetime value answers one question: how much profit does a typical customer bring in before they leave? If that number is comfortably bigger than what it costs to win the customer, the business can afford to grow. If it is smaller, every new customer makes the business poorer, no matter how fast sales rise.
The math has three parts. First, monthly gross profit per customer: average monthly revenue multiplied by gross margin. A $50 monthly subscription at a 60 percent margin earns $30 of gross profit a month — the other $20 covers the cost of delivering the service. Second, lifespan: how many months the average customer stays. You can enter it directly, or enter a monthly churn rate and let the calculator convert it, since lifespan equals 100 divided by churn. A 4.17 percent monthly churn rate means an average lifespan of about 24 months. Third, multiply monthly gross profit by lifespan to get LTV: $30 × 24 = $720.
Lifespan (months) = 100 ÷ monthly churn %
LTV = monthly gross profit × lifespan
LTV to CAC ratio = LTV ÷ acquisition cost
The LTV to CAC ratio is the headline number. Divide LTV by the acquisition cost: $720 ÷ $150 = 4.8, a ratio of 4.8 to 1. A ratio above 3 to 1 is generally considered healthy. Below 1 to 1, the business loses money on every customer it wins. Between 1 and 3, it is profitable but spending heavily for each dollar of profit, and above 5 to 1 it may be spending too little on growth and leaving sales on the table.
The payback period is the other number that matters for cash flow: acquisition cost divided by monthly gross profit. At $150 of acquisition cost and $30 a month of gross profit, payback takes 5 months. Until that point, the customer has cost more than they have earned. A short payback period means cash comes back quickly and can be spent winning the next customer, which is why subscription businesses watch it as closely as the ratio itself.
The chart shows cumulative value month by month. The blue line climbs steadily by the monthly gross profit, and the dashed line marks the acquisition cost. The month the blue line crosses the dashed line is the payback month. After that, every month of the customer's life is pure contribution toward overhead and profit.
Worked example
A subscription business charges customers $50 a month, earns a 60 percent gross margin, and keeps the average customer for 24 months. Its churn rate is about 4.17 percent a month, and it costs $150 to acquire each customer. It has 100 customers.
Step 1: Monthly gross profit — $50 × 60% = $30.00 per customer per month.
Step 2: Lifespan check — 100 ÷ 4.17 = about 24 months, matching the lifespan entered.
Step 3: Lifetime value — $30.00 × 24 = $720.00.
Step 4: LTV to CAC ratio — $720.00 ÷ $150 = 4.8, a ratio of 4.8 : 1.
Step 5: Payback — $150 ÷ $30.00 = 5.0 months. Net value per customer — $720.00 − $150 = $570.00. Total LTV of 100 customers — $720.00 × 100 = $72,000.00.
The tool gives a lifetime value of $720.00 and an LTV to CAC ratio of 4.8 : 1, with payback in 5.0 months. That is a healthy picture: each customer returns nearly five times what they cost to win, and the business recovers its acquisition spend in under half a year. If churn rose to 8 percent, lifespan would fall to 12.5 months, LTV would drop to $375, and the ratio would fall to 2.5 : 1 — which is why cutting churn is often worth more than cutting acquisition cost.
FAQ
What is customer lifetime value (LTV)?
Customer lifetime value is the total gross profit a business expects to earn from one customer over the whole time that customer stays. It is calculated as average revenue per customer per month, times gross margin, times the average customer lifespan in months. A customer paying $50 a month at a 60 percent margin for 24 months is worth $720.
What is a good LTV to CAC ratio?
A ratio of 3 to 1 or higher is generally considered healthy: each dollar spent acquiring a customer returns at least three dollars of gross profit over that customer's life. Below 1 to 1, the business loses money on every customer. Between 1 and 3, the business is profitable but spending too much to grow, and above 5 to 1 it may be under-spending on growth.
How do I find my average customer lifespan?
Divide 100 by your monthly churn rate. If 4 percent of customers leave each month, the average lifespan is 100 divided by 4, or 25 months. You can also measure it directly: take the average number of months between a customer's first and last purchase. Use the churn method when your records are thin, and the direct method when you have several years of customer history.
Should LTV use revenue or profit?
Profit, after applying your gross margin. Using revenue alone overstates value because it ignores what each sale costs to deliver. A $50 monthly subscription at a 60 percent margin contributes $30 a month of gross profit, and that $30 is the right number to multiply by lifespan. If your margin changes with scale, use the margin you expect over the customer's life.
What is the CAC payback period?
The payback period is how many months of gross profit it takes to recover the cost of acquiring a customer: acquisition cost divided by monthly gross profit per customer. With a $150 acquisition cost and $30 of monthly gross profit, payback takes 5 months. Shorter payback means cash comes back faster and can be reinvested in more growth.