How to Calculate Customer Lifetime Value (LTV) for SaaS
Learn how to calculate LTV for your SaaS business using 3 proven formulas. Plus, benchmarks and tips to increase your customer lifetime value.
Customer Lifetime Value (LTV or CLV) tells you how much revenue you can expect from a single customer over the entire duration of their relationship with your business. It's essential for understanding whether your acquisition costs are sustainable.
The Simple LTV Formula
LTV = ARPU / Monthly Churn Rate
If your average revenue per user (ARPU) is $50/month and your monthly churn rate is 5%, your LTV is $50 / 0.05 = $1,000.
The LTV:CAC Ratio
The most important use of LTV is comparing it to your Customer Acquisition Cost (CAC):
- LTV:CAC < 1:1 — You're losing money on every customer (unsustainable)
- LTV:CAC = 3:1 — The benchmark for a healthy SaaS business
- LTV:CAC > 5:1 — You might be underinvesting in growth
How to Increase LTV
- Reduce churn — The single biggest lever. Going from 5% to 3% monthly churn doubles your LTV.
- Increase ARPU — Add higher-tier plans, usage-based pricing, or add-on features.
- Drive expansion revenue — Upsell existing customers to higher plans as they grow.
Track LTV Automatically
Space Worm Analytics calculates LTV from your Stripe data and updates it daily. See how your LTV trends over time, broken down by cohort and plan tier.