Customer lifetime value: formulas, SaaS examples, and a calculator

What is customer lifetime value?

Customer lifetime value, commonly shortened to CLV or LTV, estimates the value a customer generates over the relationship. The label is used for several measures. Some calculations count revenue; others subtract the cost of delivering the service or model discounted future cash flows. State which version you mean before comparing two numbers.

For a SaaS founder, a useful starting distinction is recurring revenue versus gross profit. An account paying $40 per month with $10 of direct delivery costs contributes $30 before acquisition costs and other company expenses. Calling the full $40 profit would obscure the cost of running the service.

Stripe’s overview describes historical, cohort-based, and predictive approaches. This guide uses simple scenarios you can inspect. It does not fit a predictive model to your customers, and its outputs are assumptions to review rather than a forecast or company valuation.

• Stripe: customer lifetime value and different measurement approaches

Customer lifetime value calculator

Choose an entered lifetime assumption or a constant monthly customer-churn model. Use one currency and monthly revenue per paying account. Enter gross margin as a percentage after direct delivery costs. CAC is shown separately so the calculator can compare modeled gross-profit LTV with acquisition expense.

The calculator holds revenue and margin constant, excludes expansion and discounting, and supports a lifetime horizon up to 1,200 months. That upper bound keeps the exercise finite; it is not a recommended business planning horizon. Nonzero currency amounts and margin percentages must be at least 0.01. A churn rate implying a longer lifetime needs an explicit assumption instead.

CLV formulas with an original SaaS example

Revenue LTV = average monthly revenue per account × assumed paid lifetime in months. Gross-profit LTV = monthly revenue per account × gross margin × assumed paid lifetime. Express a 75% margin as 0.75 when multiplying. These are undiscounted, constant-revenue scenarios.

In our fictional example, an account pays $40 per month, direct delivery costs are $10 per month, and assumed lifetime is 24 paid months. Revenue LTV is $960 and gross-profit LTV is $720. With $150 acquisition cost, gross-profit LTV:CAC is 4.8:1. Simple CAC payback is $150 ÷ $30, or five paid months.

These invented values explain the arithmetic. The $720 excludes fixed company overhead, taxes, financing, and acquisition expense; it is not net profit. Cash timing also differs for annual prepayment, delayed collection, or refunds. Compare the same economic definitions before judging an acquisition channel.

How does the churn-based LTV formula work?

A common simplified model assumes a constant probability of a customer leaving each month, stable revenue per surviving account, and no expansion. With monthly customer churn expressed as a fraction, implied paid lifetime is 1 ÷ monthly churn. Revenue LTV becomes monthly revenue per account ÷ monthly churn, with gross margin added for the gross-profit version.

For the same fictional $40 account at 4% monthly customer churn, implied lifetime is 1 ÷ 0.04 = 25 months. Revenue LTV is $1,000 and gross-profit LTV at 75% margin is $750. Those results differ from the entered 24-month scenario because the lifetime assumption changed.

Stripe Atlas explains the geometric-series logic behind the inverse-churn shortcut. Keep customer churn separate from net revenue churn. A negative net revenue churn rate caused by expansion cannot be inserted into this simple formula to produce a meaningful negative customer lifetime.

• Stripe Atlas: the simplified relationship between customer churn and lifetime revenue

Why zero churn and tiny samples can mislead

If no customers leave during a short observation window, the measured churn rate is zero for that window. Dividing by zero cannot establish a finite lifetime estimate. It also does not prove customers will stay forever. Use an explicit scenario horizon and label the missing retention history.

A small denominator makes the shortcut unstable. With ten opening accounts, one cancellation is 10% monthly churn; no cancellations is 0%. Moving between those outcomes can swing a model dramatically while providing little new evidence about long-term behavior. Show the counts, customer ages, and observation period alongside any estimate.

Keep units aligned. Monthly revenue requires a lifetime in months or a compatible monthly churn assumption. Annual churn is not automatically monthly churn multiplied by twelve. Use the churn calculation guide to review opening cohorts and completed reporting windows.

Use observed cohort value before extrapolating far into the future

A cohort table can show what an acquisition group has actually generated so far. Divide revenue or gross profit accumulated over a completed horizon by the original number of acquired accounts, including accounts that later leave. Label the result with its horizon, such as observed six-month gross profit per acquired account.

For an original fictional cohort, ten accounts together produce $1,600 revenue over their first six months and $400 of direct delivery costs. Observed six-month revenue per original account is $160; gross profit per original account is $120. This is six-month observed value, not total lifetime value. Customers who remain active have unfinished lifetimes.

Compare cohorts at the same age, using consistent expense rules. A mature cohort naturally has more time to accumulate revenue than last week’s signups. If different customer jobs have different usage and renewal patterns, review customer segments rather than assuming one average lifetime describes everyone.

Original acquired accounts: 10
Completed observation horizon: 6 months
Total cohort revenue through month 6: $1,600
Direct delivery costs through month 6: $400
Observed revenue/original account: $1,600 / 10 = $160
Observed gross profit/original account: ($1,600 − $400) / 10 = $120
Future value after month 6: not established by these observations

Interpret LTV:CAC without treating a ratio as permission to spend

Compare gross-profit LTV with a CAC definition that includes the relevant acquisition effort. Mixing a revenue-only numerator with one channel’s advertising spend can make the ratio look stronger than a fully scoped calculation. The CAC worksheet separates cash expense, allocated costs, and estimated founder effort.

David Skok’s SaaS metrics discussion connects acquisition cost, lifetime value, and payback, while also pointing to more advanced methods when customer value changes over time. A simple ratio leaves out how quickly cash is recovered and how uncertain the retention assumption is. A long modeled lifetime can produce an attractive ratio with a slow or unproven payback path.

Use the calculation to expose questions: is delivery cost rising with usage, does an acquired segment renew, and how much contribution has already been observed? Test a bounded acquisition change and review the resulting cohort. Keep a planning scenario separate from evidence that the channel is already profitable.

• David Skok: SaaS unit economics, CAC, LTV, payback, and modeling limits

Download the customer lifetime value worksheet

The editable worksheet contains both fictional model scenarios, the six-month cohort example, and fields for assumptions and sensitivity checks. It uses the same definitions as the calculator. Sources were checked on October 26, 2026.

• Download the LTV assumptions and cohort worksheet (TXT)