Customer lifetime value (LTV) calculator

How the calculator works out LTV

For a subscription product the usual estimate is:

LTV = revenue per customer per month x gross margin / monthly churn

Dividing by churn is the same as multiplying by the average lifetime, because a customer stays about 1 / churn months on average. With $30 a month per customer, an 80% gross margin and 4% monthly churn, a customer stays about 25 months and is worth 30 x 0.8 / 0.04 = $600 of gross profit.

Stripe's Billing analytics uses the same idea without the margin: subscriber lifetime value is ARPU divided by subscriber churn rate. Leaving margin out gives a revenue LTV, which is higher. Say which one you mean. The LTV glossary entry explains both.

LTV to CAC, and payback

CAC, the customer acquisition cost, is what you spend on average to win one paying customer: ads, sponsorships, tools, and time if you count it. Two numbers come out of putting LTV and CAC side by side:

• LTV to CAC ratio: $600 / $150 = 4 : 1. A ratio of about 3 : 1 is a rule of thumb often quoted for SaaS; well below 1 : 1 means each customer costs more than they will ever bring in.
• CAC payback: the months of gross profit it takes to earn the CAC back. $150 / ($30 x 0.8) = 6.3 months. A short payback matters more than a big ratio when you are paying for growth out of your own pocket.

Most indie products are bootstrapped and grow through content, communities and word of mouth, so CAC is mostly time. Leave it at 0 and the calculator skips both.

Where the estimate breaks

The formula assumes churn stays flat. Early on it rarely does: churn is often high in a customer's first months and lower after. With a few dozen customers, one cancellation moves the rate a lot, so LTV will jump around. Use a three or six month average of churn, and treat the result as a range.

If churn is 0, the formula has no answer, which is why the calculator says "No churn". It does not mean customers are worth infinite money. It means you do not have enough history yet. Work out churn first with the churn rate calculator, and revenue per customer with the MRR calculator.

From planning to proof

LTV is an internal number. What people outside see is your MRR and whether it grows. If you share it in public, a verified figure saves the "is this real?" replies: makerhandle shows it straight from your payment provider with a check mark, on a page with all your projects. See verified revenue or read SaaS metrics for indie hackers for how LTV fits with the rest.