Free tool
LTV calculator: what is a customer worth?
Enter your revenue per customer, gross margin and churn. Add what it costs to win a customer to see your LTV to CAC ratio and payback.
The short answer
Customer lifetime value (LTV) is the gross profit you expect from a customer over the whole time they stay. A common formula is monthly revenue per customer × gross margin ÷ monthly churn. For example, $100 a month at 80% margin and 4% churn gives an LTV of $2,000.
How to use the number
- Compare it with CAC. An LTV to CAC ratio of about 3 to 1 is a common rule of thumb. Work out your CAC with our CAC calculator.
- Be careful when you're young. With few customers and little history, churn is a guess, and small changes swing LTV a lot. At 2% churn the example above doubles to $4,000.
- Use margin, not revenue. LTV based on revenue flatters the business, especially when you have real costs for each customer.
- Lower churn usually beats a higher price. It's worth checking both in the calculator.
Questions
How do you calculate LTV?
Monthly revenue per customer × gross margin ÷ monthly churn rate. So $100 × 80% ÷ 4% = $2,000.
What is a good LTV to CAC ratio?
About 3 to 1 is the common rule of thumb. Much lower may mean you're paying too much to win customers. Much higher can mean you could be spending more on growth.
What if I have almost no churn data?
Then treat any LTV as a rough guess. Use a cautious churn figure, and don't plan your budget around the result yet.
Is LTV the same as CLV?
Yes. LTV, CLV and CLTV all mean customer lifetime value.
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