SaaS Lifetime Value Calculator

Calculate customer lifetime value (LTV) for your SaaS business and analyze key metrics like LTV:CAC ratio and payback period.

Calculate Your SaaS Lifetime Value Calculator

Accounts for time value of money

Customer Lifetime Value

Customer LTV

$898.16

Annual Customer Value

$1,188

Average Customer Lifespan

20.0 months

LTV:CAC Ratio

3.59:1

CAC Payback Period

3.2 months

Your LTV:CAC ratio is healthy! This indicates a sustainable business model.

What is SaaS Customer Lifetime Value?

Customer Lifetime Value (LTV or CLV) is a prediction of the net profit attributed to the entire future relationship with a customer. For SaaS businesses, LTV is particularly crucial because it helps determine how much you can afford to spend on acquiring customers while maintaining profitability.

How to Calculate SaaS LTV

There are several methods to calculate LTV, from simple to complex:

Basic LTV Formula:

LTV = ARPU ÷ Churn Rate

Where ARPU is Average Revenue Per User (typically monthly)

Adjusted LTV Formula (with Gross Margin):

LTV = (ARPU × Gross Margin) ÷ Churn Rate

Advanced LTV Formula (with Discounted Cash Flow):

This calculator uses a DCF model to account for the time value of money, making the LTV estimate more accurate.

Key SaaS Metrics Related to LTV

  • LTV:CAC Ratio: The ratio of customer lifetime value to customer acquisition cost. A healthy SaaS business typically has an LTV:CAC ratio of 3:1 or higher.
  • CAC Payback Period: The time it takes to recover the cost of acquiring a customer. Most SaaS businesses aim for a payback period of 12 months or less.
  • Customer Churn Rate: The percentage of customers who cancel their subscription in a given period. Lower churn rates lead to higher LTV.
  • Average Customer Lifespan: The average duration a customer stays with your business, calculated as 1 divided by the churn rate.

Strategies to Improve SaaS LTV

  • Reduce Churn: Implement better onboarding, provide excellent customer support, and regularly deliver product improvements.
  • Increase ARPU: Use upselling and cross-selling tactics, implement tiered pricing, or add premium features.
  • Improve Gross Margins: Optimize operational costs, automate processes, and scale efficiently.
  • Extend Customer Relationships: Build long-term engagement through community building, loyalty programs, and continuous value delivery.
  • Lower CAC: Optimize marketing channels, improve conversion rates, and implement referral programs.

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Frequently Asked Questions

LTV helps SaaS companies determine how much they can spend on customer acquisition while remaining profitable. It's a crucial metric for planning marketing budgets, evaluating business health, forecasting future revenue, and making strategic decisions about product development and customer retention efforts.

Generally, an LTV:CAC ratio of 3:1 or higher is considered healthy for SaaS businesses. This means that the lifetime value of a customer is at least three times the cost of acquiring them. A ratio below 1:1 indicates you're spending more to acquire customers than they generate in revenue, which is unsustainable.

To reduce churn: 1) Create a strong onboarding process, 2) Provide exceptional customer support, 3) Regularly collect and act on customer feedback, 4) Proactively engage with at-risk customers, 5) Continuously add value to your product, 6) Build a community around your product, and 7) Consider implementing loyalty or rewards programs.

Yes, customer acquisition cost (CAC) should include all expenses related to acquiring a new customer, including marketing, sales, onboarding, and implementation costs. Excluding these costs would underestimate your true CAC and potentially lead to overestimating your LTV:CAC ratio, giving you a misleadingly positive view of your business economics.

The discount rate in LTV calculations accounts for the time value of money - the principle that money available now is worth more than the same amount in the future. A higher discount rate will result in a lower LTV because future revenue is discounted more heavily. The appropriate discount rate depends on factors like your cost of capital, risk assessment, and inflation expectations.

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