Customer lifetime value — what one customer is worth in gross profit over the whole relationship. SaaS mode works from ARPA, margin and lifetime (or churn); e-commerce mode from order value, order frequency and lifespan. Add your CAC to see the LTV:CAC ratio. Everything updates live in your browser; the defaults are the worked example.
The maths: LTV = ARPA × gross margin × lifetime. With churn, lifetime = 1 ÷ churn rate — a 4% monthly churn implies a 25-month average lifetime.
The maths: LTV = average order value × orders per year × lifespan in years × gross margin.
LTV here is gross-profit LTV — revenue times gross margin — because that is the money available to pay back acquisition cost. Revenue LTV (before margin) is shown for comparison; judging CAC against revenue LTV flatters every business.
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Customer lifetime value for SaaS and e-commerce — from ARPA, margin and lifetime or churn, or from order value, frequency and lifespan — with the LTV to CAC ratio.
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Calculate customer lifetime value (LTV) two ways: for SaaS and subscription businesses from ARPA, gross margin and average lifetime — or from churn, which implies the lifetime — and for e-commerce from average order value, orders per year, customer lifespan and margin. Add your customer acquisition cost to get the LTV:CAC ratio with a plain-English reading of it.
A SaaS charges an average of $49 per account per month at an 80% gross margin, and customers stay 25 months on average: LTV = $49 × 80% × 25 = $980. The same business with a 4% monthly churn gets the same answer the other way — lifetime = 1 ÷ 4% = 25 months, so LTV is still $980. An online store with a $64 average order, 3.2 orders per customer per year, a 2.5-year customer lifespan and a 60% margin has an LTV of $64 × 3.2 × 2.5 × 60% = $307.20. Against a $240 CAC, the SaaS example gives an LTV:CAC ratio of 980 ÷ 240 = 4.08 : 1.
SaaS LTV = ARPA × gross margin (as a fraction) × average lifetime in months. When lifetime is set by churn, lifetime = 1 ÷ churn rate, the standard steady-state identity: at 4% monthly churn, 1 ÷ 0.04 = 25 months. E-commerce LTV = average order value × orders per customer per year × lifespan in years × gross margin. LTV:CAC = LTV ÷ CAC. LTV is calculated on gross profit, not revenue, because gross profit is the money actually available to repay acquisition cost; revenue LTV is shown alongside for comparison. CAC payback divides CAC by the gross profit a customer generates per period.
The commonly-cited guidance is 3 : 1 — each customer returns at least three times what they cost to win. Below 1 : 1 acquisition loses money outright; 1–2 : 1 is thin once overheads are counted; well above 5 : 1 can mean you are under-investing in growth. It is guidance, not a law — payback speed and cash flow matter too.
Gross profit, for decisions about CAC. Revenue LTV counts money that goes straight back out as serving costs, so comparing CAC to revenue flatters the business. This calculator leads with gross-profit LTV and shows revenue LTV alongside so you can see the difference.
Lifetime = 1 ÷ churn rate. A 4% monthly churn means the average customer stays 1 ÷ 0.04 = 25 months; a 2% churn implies 50 months. It assumes a steady churn rate, so it works best with a mature, stable churn figure.
Everything it costs to win a customer: ad spend, sales and marketing salaries for the share of their time spent acquiring, tools, agency and content costs — divided by the number of new customers those efforts won in the same period. Leaving salaries out is the most common way CAC gets understated.
How long a customer’s gross profit takes to repay what they cost to win: CAC ÷ gross profit per period. The SaaS example pays a $240 CAC back in about 6.1 months of gross profit ($39.20 a month) — comfortably inside a 25-month lifetime. Long paybacks strain cash even when the eventual ratio looks fine.
Because one order is not a customer relationship. A $64 order value means little until you know whether a customer orders once or 3.2 times a year, and for how many years — frequency and lifespan are where most e-commerce LTV is actually won or lost.
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