Calculating Customer Lifetime Value (LTV) tells you how much revenue a typical user will generate during their relationship with your product. It seems simple enough until you actually try to calculate it.
That’s when things get fuzzy, especially when investors ask how you got your numbers.
This customer lifetime value calculator online is here to fix that. Built by Eleken, it gives you a clear formula, optional step-by-step breakdowns for each input, and a real understanding of what the result means for your business.
If you’re in SaaS and tired of guessing what a customer is worth, start here.
LTV calculator SaaS
So, how to calculate LTV SaaS? Below is a simple interactive tool that lets you input just three values: average revenue per user (ARPU), churn rate, and costs, and instantly get your LTV. It’s fast, founder-friendly, and helps you see what each customer is really worth.
The core formula behind this calculator is:
Let’s break it down:
- ARPU (average revenue per user) tells you how much each customer pays you per month.
- Gross margin accounts for the costs of serving that customer, such as hosting, support, and third-party tools.
- SaaS churn rate is how quickly you lose customers.
So, the idea is to take the monthly revenue per customer, adjust it for profit margin, and then project it across how long that customer typically sticks around.
For example, if your ARPU is $50, your gross margin is 80% (use 0.8), and your churn is 5% per month:
That means the average customer brings in $800 in profit over their lifetime.
How to use this calculator
Before you plug in your numbers, gather a few key SaaS metrics for a consistent time period, usually monthly:
1. Find your ARPU
Divide your total monthly recurring revenue (MRR) by the number of active customers in that period. For example, if you earned $100,000 this month from 500 customers, your ARPU is $200 per month. (We’ll elaborate on ARPU in the next section.)
2. Determine your churn rate
This is the percentage of customers who cancel or leave in that period. For instance, if you started the month with 500 customers and 25 canceled, your churn rate is 5%. The average customer lifetime in months is the reciprocal of that churn (more on this soon).
3. Estimate COGS or gross margin
Add up the direct costs of serving customers, like hosting, support, and any other costs that scale with customer count. Subtracting COGS from revenue gives your gross margin percentage. For example, if your gross margin is 80%, you’ll use 0.8 in the formula (or subtract 20% of the revenue as costs).
Once you enter these three numbers, hit “Calculate.” You’ll get an estimated LTV in seconds.
Let’s say:
- ARPU = $50/month
- Churn = 5% → Lifetime = 20 months
- Gross margin = 90%
So, each customer brings in $900 in profit over their lifetime. That’s the number you want to compare to customer acquisition cost (CAC) and use in revenue planning.
From here, we’ll break down each piece of the formula to help you refine your inputs and get the most accurate picture possible.
Breaking down the LTV formula
The three components in the LTV calculation SaaS are: Average Revenue Per User (ARPU), Average Customer Lifetime (which relates to churn rate), and Gross Margin. Let’s examine each one:
- Average revenue per user (ARPU)
This is your average customer’s monthly spend.
The formula is as follows:
If your SaaS app brings in $20,000 per month from 200 customers, your ARPU is $100.
Now, two things matter here:
- It’s recurring revenue; one-time payments don’t count.
- It’s per user, not per account, unless your billing is account-based.
Tip: When companies want to raise ARPU, they usually start with a pricing strategy: tiered plans, add-ons, and usage-based upgrades.
But just as important is investing in SaaS customer success because when users find real, ongoing value in your product, they’re more likely to upgrade, stick around, and spend more.
- Average customer lifetime
This one’s tricky, not because it’s hard to calculate, but because most teams don’t like what it reveals.
Here is the formula:
If you churn 5% of your customers each month, they’re sticking around for 20 months on average.
Here’s what that means in practice:
- A high churn rate (say, 10%) cuts your lifetime to just 10 months.
- A low churn rate (say, 2%) extends it to 50 months, which is when things become profitable.
For example, you’ve got a churn rate of 4%. That means your average customer lifetime is 25 months.
In terms of benchmarks, B2C SaaS businesses often see monthly churn rates between 10% and 20%, while B2B SaaS companies typically operate in a healthier range of 2% to 8%.
- Gross margin or Cost of goods sold (COGS)
COGS, short for Cost of Goods Sold, is what it costs you to keep your product running for each customer. It’s easy to overlook, but it’s a key part of understanding your real profit, not just your revenue.
In SaaS, COGS typically includes:
- Hosting and server fees (like AWS or Google Cloud).
- Third-party tools you rely on to deliver the service (think email delivery platforms or analytics tools).
- Customer support and success teams.
- Onboarding and implementation (especially if your team has to help set things up manually).
Quick tip: COGS only includes the costs related to serving existing customers. It does not include marketing, sales, or acquisition costs. That stuff goes into your CAC SaaS (Customer Acquisition Cost), not your LTV formula.
Here’s an example. Let’s say each customer pays you $100 per month (ARPU), but it costs you $20/month to support them: server space, tools, and support staff. That means you’re keeping $80 in gross profit per user per month.
The percentage of revenue you keep after subtracting COGS is your gross margin. In this case:
You’ll use this percentage in the lifetime value calculation SaaS formula above.
And if you want to dig deeper into financial metrics for SaaS companies, consider watching this video:
Interpreting LTV results
Okay, you’ve got a number. But calculating LTV SaaS is only half the job. The real value comes from understanding what that number actually tells you, especially when it comes to SaaS profitability and long-term growth.
To make sense of it, start with two simple questions: Is it good or bad, and what should you do with it?
Let’s answer the first one.
What’s a “good” LTV?
It depends on your CAC. A solid SaaS business usually aims for an LTV/CAC ratio of 3:1. That means for every $1 you spend to acquire a customer, you expect to earn $3 back over their lifetime.
If your LTV is too low, say, a 1:1 ratio with CAC, it likely means you’re losing money on every customer.
On the other hand, if it’s too high, like 6:1, it could be a sign that you’re not investing enough in growth and are overlooking opportunities.
This ratio helps you decide if you should:
- Scale faster (high LTV, low CAC).
- Fix churn (short lifetime).
- Rethink SaaS pricing model (low ARPU).
- Trim COGS (too much cost to serve).
Here’s a quick comparison to show how LTV and CAC ratios play out in healthy vs unhealthy SaaS scenarios:
If your numbers lean toward the unhealthy side, don’t worry. We’ve got answers to that second question: What can you do about it?
Let’s walk through practical strategies to improve each part of the LTV formula.
How to improve your SaaS LTV
The good news is that your LTV has three levers, and you can pull any of them, sometimes all three.
- Increase ARPU
More revenue per user = higher LTV. Simple math.
You can try:
- Tiered pricing: Offer more value at the top (see Notion or HubSpot).
- Add-ons and upsells: Think analytics modules, integrations, or user seats.
- Usage-based pricing: Charge based on what users actually consume (popular in dev tools and APIs).
We don’t recommend simply raising prices. Instead, use UX to highlight the value differences between tiers. Pricing pages should sell the plan, not just list features.
A clear visual structure helps users understand the true value of your SaaS product and lays the groundwork for the rest of the design. That’s exactly what we did on our own website, where we clearly compared Eleken to in-house designers to show what sets us apart.
- Extend customer lifetime
A sticky product is a profitable product. To keep customers around longer, focus on making their experience seamless and supportive from day one:
- Start with frictionless onboarding right inside the SaaS dashboard because users won’t stick around if they don’t “get it.” Your empty states matter more than your hero image.
- Add proactive customer support that handles routine issues automatically, but makes it easy to reach a real human when things get complicated.
- Build in churn prevention flows. Use timely emails, in-app nudges, and smart exit surveys to catch users before they leave.
At Eleken, we’ve seen how thoughtful UX can solve real business problems. One of our clients, MyInterview, faced a major customer retention issue: 90% of candidates dropped off mid-interview.
To reduce churn, we improved SaaS user onboarding and streamlined the flow.
The redesign made multi-selection more intuitive with clear checkboxes, full-width clickable areas, and visual confirmation of selected options. These small, intentional changes helped candidates feel more confident and stay engaged.
- Reduce COGS
This one’s often ignored. But if your infrastructure is bleeding money, LTV won’t matter. You can:
- Audit your tech stack. Cut expensive tools no one uses.
- Streamline support. Help centers, chatbots, and UI improvements can reduce tickets.
- Design for self-service. The more your users can do on their own, the lower your per-user costs.
We’ve seen this firsthand with our client Gamaya. By redesigning their UI with ready-made components, we simplified the product experience while minimizing dev effort. As a result, support costs became lower and product maintenance became cheaper.
Once you’ve pulled some levers and calculated LTV SaaS, what then? Let’s talk about how to actually use that number in your strategy.
From numbers to strategy
LTV is a mirror that shows what your customers think of your product, how long they trust you, and whether your business is built to scale or stall.
Use our customer LTV calculator above to check your LTV. If your number came in lower than expected, that’s okay; you caught it early. If it looks strong, great.
But don’t get too comfortable. Ask yourself:
- Could your pricing be smarter?
- Could your churn be lower?
- Could your support cost less?
Now, let’s turn that number into action. Here’s how to use it:
- Plan smarter budgets.
A stable LTV helps you forecast revenue, estimate support needs, and justify new hires without relying on best guesses. It’s the foundation for financial plans that hold up, even when churn creeps up.
- Optimize marketing and CAC.
LTV means nothing without CAC. The balance between the two tells you how fast and how safely you can grow.
Double down on acquisition if your LTV is high and CAC is low. If it’s the other way around, it’s time to pause and recalibrate. Use the ratio to decide which channels to scale or cut.
- Make your startup VC-friendly.
Investors don’t care about your roadmap if the unit economics don’t add up. A strong LTV/CAC ratio of 3:1 or better is table stakes for raising capital.
Say, you can confidently state, “We make $2,400 per customer on a $700 CAC”. You’ll get attention. Show that those numbers have improved over time, and you’ll earn real credibility.
Not sure where to start? We’ve helped SaaS teams improve all of the above through better design. Reach out to us. We love a good metric makeover.
