FINBIZTOOLS
LTV Calculator
Estimate customer lifetime value (LTV) from average revenue per user, gross margin, and either a monthly churn rate or an average customer lifespan.
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Changes the currency symbol and number format only. Amounts are not converted.
How to use the LTV Calculator
- Choose whether you are starting from a monthly churn rate or an average customer lifespan.
- Enter average revenue per user (ARPU) and gross margin.
- Enter the monthly churn rate, or the average customer lifespan in months.
- Select Calculate to see the implied average lifespan and the estimated lifetime value.
Use the currency selector above the inputs to change the symbol. It changes the display only and does not convert amounts.
What is LTV?
Customer lifetime value (LTV) estimates the total gross-margin revenue a typical customer generates over their relationship with the business.
It is commonly derived from ARPU and gross margin, combined with either a directly estimated average customer lifespan or a lifespan implied from the monthly churn rate.
How the calculation works
LTV formula
LTV = ARPU × Gross margin × Average customer lifespan (months)
Average lifespan (months) = 100 ÷ Monthly churn rate (%)
- ARPU is average revenue per user for a month.
- Gross margin is the percentage of revenue remaining after the direct cost of serving a customer.
Deriving lifespan from churn rate assumes a constant monthly churn rate, a simplification; churn rates commonly change over time and vary between customer segments.
LTV calculation example
ARPU of 100, 80% gross margin, and a 5% monthly churn rate:
| ARPU | 100 |
|---|---|
| Gross margin | 80% |
| Monthly churn rate | 5% |
| Average revenue per user (ARPU) | 100 |
|---|---|
| Implied average lifespan (months) | 20 |
| Customer lifetime value (LTV) | 1600 |
Entering the same ARPU and margin with an average lifespan of 20 months directly gives the identical LTV of 1,600, since a 5% monthly churn rate implies a 20-month average lifespan (100 ÷ 5). Amounts are shown without a currency symbol; the currency selector only changes the symbol and number format.
Assumptions and limitations
Assumptions
- ARPU, gross margin and churn rate (or lifespan) are each single averages across the customer base being estimated.
- The churn-rate mode assumes a constant monthly churn rate over the customer's whole relationship, which is a simplification of real, usually declining, churn curves.
Limitations and why results can differ
- LTV here is a simple average-based estimate, not a discounted cash flow model and not personalized to any individual customer.
- It does not account for the time value of money (a common refinement in more advanced LTV models discounts future revenue to a present value).
Frequently asked questions
Why does the calculator need gross margin, not just revenue?
LTV is meant to represent the value a customer contributes after the direct cost of serving them, not raw revenue, so gross margin converts ARPU into a margin-adjusted figure.
How is average lifespan derived from churn rate?
With a constant monthly churn rate, the expected average lifespan in months is 1 ÷ churn rate (as a decimal), shown here as 100 ÷ churn rate (%).
Which mode should I use?
Use churn rate if you track it directly; use average lifespan if you have historical data on how long customers actually stay, which can be more accurate than an implied figure.
Is this LTV figure exact?
No. It is an estimate from average inputs, useful for comparing against CAC, not a guaranteed value for any individual customer.
Methodology
ARPU (0 to 1,000,000,000) and gross margin (0% to 100%) are validated directly. In churn mode, monthly churn rate (0.01% to 100%) implies an average lifespan of 100 ÷ churn rate months; in lifespan mode, average lifespan (0.01 to 1,200 months) is entered directly.
LTV = ARPU × (gross margin ÷ 100) × lifespan months, computed directly. The calculation runs in your browser and inputs are not sent to a server.
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Disclaimer
Results are calculated estimates based on the figures you enter. They are not accounting, pricing, tax or legal advice. Verify important business and pricing decisions with your own records and a qualified professional. Read the full Disclaimer.
Explore this topic
This tool is part of SaaS and Startup Metrics.
A common order: measure recurring revenue and churn, compare customer value with acquisition cost, then check runway.