Customer Lifetime Value Calculator
Lifetime value in gross profit, discounted for the money that arrives years from now, with the LTV to CAC ratio next to it.
Revenue per customer per month $149.00
Gross margin 78%
Gross profit per month $116.22
Churn per month 4.5%
Retention per month 95.5%
Average lifetime 22.2 months
Lifetime value $2,582.67
Discount rate 10% a year
Discounted lifetime value $2,211.40
Acquisition cost $570.00
LTV to CAC ratio 3.88 to 1
Gross profit after acquisition $1,641.40
Payback, in months 4.9
The $2,582.67 is gross profit, not revenue. Using the $149.00 a customer
pays instead of the $116.22 you keep would report $3,311.11, and every
acquisition decision built on that number assumes delivery is free.
Discounting at 10% a year takes it to $2,211.40, because a payment 22
months out is not worth a payment today. That gap is $371.27, and it is
the part of a lifetime value you cannot spend yet.
A ratio above 3 to 1 is the usual rule of thumb for having room to spend
more on acquisition. The rule is a rule of thumb: what it really says is
that lifetime value has to cover acquisition and everything else the
business costs.
This assumes churn stays flat, which it does not. It is highest in the
first weeks and falls after, so a single blended rate understates the
value of a cohort that has already survived its first months and
overstates a brand new one. Segment first if the decision is expensive.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
Lifetime value is gross profit divided by churn, not revenue divided by churn. The difference is your delivery cost, and on a software product with a 78 percent margin it is a fifth of the answer.
The second correction is time. A customer worth 2,582 over 22 months is not worth 2,582 today, and the gap between those two numbers is large enough to change what you are willing to pay to acquire one. Both figures are reported here, counting the same payments, so the only thing that differs between them is the time value of money.
How to use
- Put in what an average customer pays per period, and pick the period.
- Put in your gross margin. This is the field that turns revenue into value.
- Put in the churn rate for the same period. It has to be above zero.
- Optionally add your cost of capital as a discount rate, and your CAC for the ratio.
Example
149 a month at a 78 percent gross margin, 4.5 percent monthly churn, discounted at 10 percent a year, against a 570 acquisition cost:
Revenue per customer per month $149.00
Gross margin 78%
Gross profit per month $116.22
Churn per month 4.5%
Retention per month 95.5%
Average lifetime 22.2 months
Lifetime value $2,582.67
Discount rate 10% a year
Discounted lifetime value $2,211.40
Acquisition cost $570.00
LTV to CAC ratio 3.88 to 1
Gross profit after acquisition $1,641.40
Payback, in months 4.9Run the same customer on revenue instead of margin and it reports 3,311. That is 729 of value that does not exist, and it is the number that makes a bad acquisition budget look prudent.
Pitfalls
Revenue is not value. Delivery costs money. Hosting, support, payment fees and the part of the team that keeps the lights on all come out before any of it is yours. Use gross margin, not revenue, and use your real margin rather than the one in the pitch deck.
Zero churn has no answer. If nobody ever leaves the series never ends and the value is infinite, not large. The tool refuses it rather than printing a very big number, because a very big number would get used.
One blended churn rate flattens two different customers. Churn is highest in the first weeks. A cohort that has already survived six months is worth more than this calculation says, and a brand new signup is worth less. Segment before you make an expensive decision.
The discount rate matters more the longer the lifetime is. At 22 months it costs about 14 percent of the total. At a five-year lifetime it takes a quarter of it. If your product is sticky, the undiscounted number is the one that is wrong.
A ratio is not a target. Three to one is a rule of thumb about having room for the costs that are in neither number: product, support, the office, everything that is not acquisition or delivery. Optimising the ratio itself leads to spending too little on acquisition, which is a slower way to fail than spending too much.
Do not double-count discounting and a haircut. Some teams discount the cash flows and then also cut the lifetime to be conservative. Pick one, or the number gets small enough to stop you doing anything.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored. The share link carries the figures, which is how a lifetime value assumption can be argued with instead of just quoted.
The closed form used for the discounted figure is C * (1 + d) / (1 + d – r), with C the gross profit per period, r the retention and d the discount rate per period. The version usually quoted in textbooks is C * r / (1 + d – r), which starts the series at the end of the first period and so leaves out the payment the customer makes today. That version comes out a period of margin short even at a zero discount rate. Since this page prints the simple and discounted figures side by side, both count the same payments, and the difference between the two lines is only the discounting.
An annual discount rate is converted to a monthly one by compounding, not by dividing by twelve. Ten percent a year is 0.797 percent a month.