Customer Lifetime Value Formula
Basic LTV:
LTV = ARPU / Monthly Churn Rate
Margin-adjusted LTV (recommended):
LTV = ARPU × Gross Margin % / Monthly Churn Rate
Example
A SaaS company with: - ARPU: $99/month - Gross margin: 70% - Monthly churn: 2%
LTV = 99 × 0.70 / 0.02 = \$3{,}465
Why Gross Margin Matters
Gross LTV ($4,950) overstates value — not all revenue is profit. The margin-adjusted LTV ($3,465) is what you actually keep, and is what should be compared to CAC.
LTV Inputs to Track
| Input | Impact on LTV |
|---|---|
| Reduce churn by 1% | Large — LTV is inversely proportional to churn |
| Increase ARPU by 10% | Proportional increase |
| Improve gross margin | Direct multiplier effect |
Use the LTV Calculator to compute LTV, LTV:CAC, and payback period together.