Customer LTV: $100 ARPA, 80% Margin, 5% Churn
With $100 monthly ARPA, 80% gross margin, and 5% monthly churn the customer lifetime value is $1,600.
How to use this tool
- Enter the average revenue one customer generates per period.
- Enter your gross margin (or 100% for a revenue-based LTV).
- Enter your churn rate per period, in the same time unit as the revenue.
- Read the lifetime value, average lifespan, and gross margin per period.
This is one of the most common LTV scenarios for SMB SaaS products — understanding LTV helps set appropriate CAC targets and payback period goals.
Frequently asked questions
- Why divide by churn rate?
- The average customer lifespan is approximately the reciprocal of the churn rate. A 5% periodic churn means a customer stays about 1 ÷ 0.05 = 20 periods on average, so multiplying periodic margin by that lifespan gives lifetime value.
- Should I use revenue or gross margin?
- Gross-margin LTV is the more defensible number because it reflects profit you keep after serving the customer. Use revenue (100% margin) only when you specifically want a revenue-based figure, and keep comparisons consistent.
- Does this account for discounting?
- No. This is the simple, undiscounted LTV. For long-lived, high-value customers you may want to discount future periods to present value, which produces a lower, more conservative LTV.