Published 2025-12-18 · Last updated 2026-02-26 · Reviewed by Valzura Editorial Team
LTV Calculator
See what each customer is worth and whether your acquisition spend pays off.
Customer lifetime value (LTV) is the total gross profit a business expects to earn from a customer over the life of the relationship. The standard formula divides the monthly gross profit per customer (average revenue times gross margin) by the monthly churn rate, since one divided by churn equals the average customer lifetime in months. Comparing lifetime value to customer acquisition cost (CAC) shows whether growth spending actually creates value, with a ratio of 3 to 1 as the common benchmark.
What the typical customer pays you per month.
Revenue left after the direct cost of serving the customer.
Share of customers who cancel each month.
Total sales and marketing spend divided by new customers won.
Customer Lifetime Value
$3,500
Total gross profit expected from the average customer.
LTV to CAC ratio
2.9 : 1
Positive but below the 3 to 1 benchmark most investors look for.
The customer lifetime value formula
The formula works because one divided by the churn rate equals the average customer lifetime: at 3 percent monthly churn, customers stay 33 months on average. This customer lifetime value calculator multiplies monthly revenue by gross margin first, so the result measures gross profit rather than revenue; a customer who pays a lot but costs a lot to serve is worth less than the topline suggests. If you do not know your margin, run your numbers through a quick gross margin check before using this tool.
A worked example: a 150 dollar subscription
Take a service billing 150 dollars per month at a 70 percent gross margin with 3 percent monthly churn and a 1,200 dollar customer acquisition cost. Monthly gross profit is 105 dollars, and dividing by the 3 percent churn gives a lifetime value of 3,500 dollars. Against the 1,200 dollar acquisition cost, the ratio is about 2.9 to 1, just shy of the benchmark, and the payback period is 1,200 divided by 105, roughly 11.4 months. Cutting churn to 2 percent would push lifetime value to 5,250 dollars and the ratio to 4.4 to 1 without touching price or marketing spend.
Getting customer acquisition cost right
Because it folds acquisition spend into the result, this tool also works as a customer acquisition cost calculator in reverse: divide total sales and marketing spend for a period by the customers won in that period, and enter the figure. Include advertising, sales salaries and commissions, tooling, and agency fees. Founders who count only ad spend routinely understate the true cost by half, which makes weak unit economics look healthy right up until a fundraise or diligence process exposes them.
The 3 to 1 benchmark and payback period
The widely cited target is a lifetime value at least three times the acquisition cost, paired with recovering that cost within about 12 months of gross profit. Below 3 to 1, too much of each customer's value is consumed by winning them; dramatically above it, the business may be leaving growth on the table by underspending. Payback matters independently because it sets how fast cash recycles: a 12 month payback lets the same marketing dollar be reinvested annually, while a 24 month payback ties up capital and often forces founders to raise more and accept more equity dilution.
Unit economics drive company value
Acquirers and investors price recurring revenue businesses on the durability of these numbers. Strong lifetime value relative to acquisition cost proves that growth is profitable rather than purchased, and low churn compounds with the growth you can measure in the revenue growth calculator. If your unit economics hold up, the next question is what the whole company trades for: see what your company is worth based on your revenue, margins, and industry.
Frequently Asked Questions
What is a good LTV to CAC ratio?
The widely used benchmark is 3 to 1: each customer should generate at least three dollars of lifetime gross profit for every dollar spent to acquire them. Below 1 to 1 you lose money on every customer. A very high ratio, such as 6 to 1 or more, can signal that you are underinvesting in growth.
How do you calculate customer lifetime value?
Multiply average monthly revenue per customer by your gross margin to get monthly gross profit, then divide by the monthly churn rate. A customer paying 150 dollars a month at a 70 percent margin with 3 percent monthly churn is worth 150 times 0.70 divided by 0.03, which is 3,500 dollars.
What is included in customer acquisition cost?
Customer acquisition cost is total sales and marketing spend over a period divided by the number of new customers acquired in that period. Include advertising, sales salaries and commissions, marketing tools, and agency fees. Excluding sales headcount is a common mistake that makes acquisition look cheaper than it really is.
What is a good CAC payback period?
Many software and subscription businesses aim to recover customer acquisition cost within 12 months of gross profit, and under 18 months is generally workable. A shorter payback means acquisition spend recycles into growth faster and the business needs less outside capital to expand.
Why does churn matter so much for lifetime value?
Churn sets the length of the customer relationship: at 3 percent monthly churn the average customer stays about 33 months, while at 5 percent it drops to 20 months. Because lifetime value divides by churn, cutting churn from 5 to 3 percent raises lifetime value by two thirds with no change in pricing.
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