Customer Lifetime Value (LTV)
LTV is a valuable metric for assessing the health of a subscription business and making informed decisions about customer acquisition. However, it can be difficult to reliably estimate. Try the calculator tool below to find out the LTV for your business!
Calculate my LTVLTV Calculator
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What is LTV?
Customer Lifetime Value (LTV) represents the average revenue that a customer generates before they churn, offset by gross margin. LTV in SaaS is only ever used as a forwardlooking estimate of the future, but calculating a reasonable estimate allows you to make smarter decisions for your business.
How is LTV useful?

Balancing customer acquisition spend
If I know my LTV is ‘X’, I can confidently spend ‘Y’ to acquire customers without much risk.

Determining payback period
How long does it take for a customer to “pay back” their acquisition cost? The longer this is, the more risk there is tied up in the business.

Investor reports
Many investors in SaaS want to see LTV as a part of their “health” assessment of a prospective investment.
The basic LTV formula
ARPA: Average Revenue Per Account (The average MRR across all of your active customers)
Gross Margin: The difference between revenue and COGS (Cost Of Goods Sold). This is typically extremely high in SaaS (>80%)
Customer Churn Rate: The rate at which your customers are cancelling their subscriptions.
This basic LTV formula is commonly accepted as a useful starting point. However, it’s only a rough estimate and doesn’t properly account for MRR expansion, contraction or nonlinear churn.
The “David Skok” formula Advanced mode
G is an annual growth rate for customers who haven’t churned
K = (1  Customer Churn Rate) x (1  Discount Rate)
Discount Rate is a predefined annual rate of your choosing, accommodating risk and reduced value of future money. Skok suggests a value of 2025% for prescale businesses. The calculator above uses a fixed discount rate of 20%.
SaaS VC and thought leader David Skok recently introduced a more advanced LTV formula, which produces a more ‘realistic’ estimate of the metric. The formula incorporates:
 Revenue expansion from customers upgrading plans
 Risk (resulting in a more pessimistic value)
 The reduced value of money over time
David Skok: What’s your TRUE customer lifetime value (LTV)? – DCF provides the answer