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Customer Lifetime Value Calculator

Work out customer lifetime value from revenue, gross margin and churn or customer lifespan, and compare it with what it costs to win the customer. You get the LTV:CAC ratio and the payback time too.

Your numbers

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Leave it blank for a revenue LTV.

Customers at the start of a month and customers lost during it.

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The share of customers who leave in a month.

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Sales and marketing spend ÷ new customers won, for the same period.

Lifetime value (revenue)

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Average customer lifespan
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Monthly churn
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Revenue per customer, monthly
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Revenue per customer, yearly
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No gross margin entered: this is a revenue LTV, the most a customer could be worth.

The calculation runs in your browser and ParrotNotes does not store your numbers. They sit in the page address so you can bookmark or share the result.

What customer lifetime value means

Customer lifetime value (LTV, sometimes CLV) is what an average customer brings in over the whole time they stay with you. For a subscription business it answers one question: how much can we afford to spend to win a customer?

The simple version needs three numbers: revenue per customer, gross margin, and how long customers stay. Revenue per customer is your MRR (or ARR) divided by the number of customers.

The formulas, with an example

  • Average lifespan (months) = 1 ÷ monthly churn
  • Revenue LTV = revenue per customer per month × lifespan
  • Gross-margin LTV = revenue LTV × gross margin
  • LTV:CAC = gross-margin LTV ÷ customer acquisition cost
  • CAC payback (months) = CAC ÷ (revenue per month × gross margin)

A customer pays $100 a month, your gross margin is 80% and 2% of customers leave each month. The average customer stays 1 ÷ 0.02 = 50 months, so the revenue LTV is $100 × 50 = $5,000 and the gross-margin LTV is $4,000. If winning a customer costs $1,000, LTV:CAC is 4 to 1 and the payback is $1,000 ÷ $80 = 12.5 months.

The 3 to 1 rule of thumb

A common rule of thumb says a healthy subscription business earns about three times its acquisition cost back from a customer: an LTV:CAC of around 3 to 1. It is a rule of thumb, not a law, and the right number depends on your cash, your growth plans and how sure you are of the churn figure.

Below 1 to 1, each new customer costs more than they bring in. Far above 3 to 1 can mean you are spending too little to grow. The payback period matters as much: a good ratio with a three-year payback still ties up a lot of cash.

Where the simple formula falls short

Churn is rarely constant. New customers often leave faster than customers who have stayed a year, so one average rate can flatter or punish the result. If you have the data, work out LTV by cohort: customers who joined in the same month, followed over time.

The formula also leaves out expansion revenue (upgrades, more seats, price rises), which can make a customer worth more over time, and it does not discount future money to today's value. Use it to compare segments, channels and months with each other, not as an exact valuation.

How to calculate churn rate

Monthly churn is the customers lost during a month divided by the customers you had at the start of that month. With 200 customers on the 1st and 4 cancellations during the month, churn is 4 ÷ 200 = 2%. Customers who joined during the month are not in either number.

Turn on "Work out churn from customer counts" in the calculator to do it there. If you only know how long customers stay on average, choose the lifespan option instead: the page shows the churn it implies.

More for sales leaders: SaaS sales: how it works, Sales QBR agenda and template.

Keep the customers you worked out

Churn starts in conversations nobody wrote down. ParrotNotes records customer calls and pulls out the action items, so renewals do not depend on memory.

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Customer lifetime value calculator FAQ