What is Customer Lifetime Value?
Customer Lifetime Value is the total gross profit you can expect from one customer for as long as they stay with you. It converts a recurring relationship into a single number you can compare directly against what it costs to acquire that customer. The churn-based formula used here assumes a steady cancellation rate and no expansion revenue, which makes it a forecast rather than a fact — useful for setting an acquisition budget, much less useful as a precise valuation. Treat it as the ceiling on what a customer can be worth, and revisit it whenever pricing or retention moves.
Why it matters
- It sets the ceiling for how much you can afford to spend on acquisition — CAC only makes sense in relation to LTV.
- A rising LTV means your product or retention efforts are working, independent of anything marketing does.
- It's the number that turns 'reduce churn by 1%' into a concrete revenue figure leadership can act on.
The formula
LTV = (Monthly Revenue per Customer × Gross Margin) ÷ (Monthly Churn Rate + Monthly Discount Rate)
- Monthly Revenue per Customer
- — average recurring revenue one customer generates per month
- Gross Margin
- — revenue left after the direct cost of serving that customer
- Monthly Churn Rate
- — share of customers who cancel in an average month
- Monthly Discount Rate
- — optional — how fast future revenue loses value; 0 leaves the figure undiscounted
How to use this calculator
- 01Pull average monthly revenue per customer from your billing or subscription platform.
- 02Estimate gross margin — revenue minus hosting, support, and delivery costs, as a percentage.
- 03Enter your monthly churn rate, calculated as customers lost ÷ customers at start of month.
- 04Compare the result against your CAC using the LTV:CAC Ratio calculator.
Worked example
A subscription tool charges $80/month per customer, runs a 70% gross margin, and loses 3% of customers each month.
- Monthly gross profit per customer = $80 × 70% = $56
- Average customer lifespan = 1 ÷ 3% = ~33.3 months
- LTV = $56 × 33.3 = $1,867
This company can justify spending meaningfully more than a few hundred dollars to acquire a customer, since each one is worth nearly $1,900 in gross profit over their lifetime.
Industry benchmarks
Compiled August 2026
B2C subscription apps
$50 – $300
Lower price points, higher churn.
B2B SaaS (SMB)
$1,000 – $3,000
Moderate churn, moderate contract value.
B2B SaaS (Enterprise)
$10,000+
Low churn, high contract value.
Ecommerce (repeat purchase)
$150 – $600
Depends heavily on repeat-purchase rate.
Common mistakes
- Using revenue instead of gross profit — this overstates LTV by ignoring delivery costs.
- Applying a single blended churn rate across very different customer segments, which hides which segment is actually valuable.
- Treating LTV as fixed instead of recalculating it as churn and pricing change over time.
- Ignoring expansion revenue (upsells/upgrades), which can meaningfully increase LTV beyond the base subscription.
How to improve your LTV
Reduce churn before increasing acquisition spend
A 1-point reduction in monthly churn compounds significantly over a customer's lifespan — often more impactful than any acquisition tactic.
Increase margin through delivery efficiency
Lowering support or infrastructure cost per customer raises LTV without touching price or retention at all.
Check this against CAC by channel
A single LTV number means little without knowing which acquisition channels bring in customers who actually stay.
Compare CAC by channel →Frequently asked questions
Is LTV the same as lifetime revenue?+
No — LTV should be based on gross profit, not raw revenue, since revenue that costs a lot to deliver overstates how valuable a customer really is.
How do I calculate LTV for a non-subscription business?+
Use average order value × purchase frequency per year × average years as a customer × gross margin, instead of the churn-based formula.
What LTV:CAC ratio should I aim for?+
3:1 is a common target — high enough to be profitable after accounting for overhead, but not so high that it signals under-investment in growth.
How far into the future should LTV look?+
Many finance teams cap it at 24 or 36 months rather than projecting an infinite lifespan, on the grounds that a forecast stretching beyond your product roadmap isn't really a forecast. Capping produces a lower, more defensible number — and if acquisition still works against the capped figure, it definitely works.
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