Calculate Customer Lifetime Value to make smarter acquisition decisions.
LTV (gross margin)
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Most accurate. Uses gross margin to reflect actual profit.
Customer Lifetime Value (LTV) is the total revenue you can expect from a single customer over the course of their relationship with you. It is the ceiling on what you can spend to acquire a customer profitably.
ARPU is Average Revenue Per User per month. Gross margin is the percentage of revenue left after the cost of delivering your service. Monthly churn rate is the percentage of customers you lose each month.
Healthy LTV:CAC ratio
3:1+
Strong LTV:CAC
5:1+
CAC payback period
<12 months
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A 3:1 ratio is the standard target — you make $3 in lifetime revenue for every $1 spent acquiring a customer. Below 3:1, you are underinvesting in growth or your unit economics need work. Above 5:1, you might be underspending on acquisition.
Gross margin is more accurate. SaaS gross margins are typically 70-85%, so using raw revenue overstates LTV. Investors and most operators prefer the gross-margin version.
Reduce churn (the biggest lever — LTV is inversely proportional to churn), increase ARPU through expansion revenue and upsells, and improve gross margin through pricing or cost efficiency.