Calculating LTV for SaaS: Formula With Examples
Published on March 27, 2026 · Jules, Founder of NoNoiseMetrics · 7min read
Calculating LTV: The SaaS Formula Every Founder Gets Wrong
Most LTV formulas floating around ignore churn entirely. They multiply ARPU by some vague “average lifetime” and call it a day. The result? An LTV number inflated by 2—5x. Here’s how to calculate lifetime value that reflects reality.
LTV (Lifetime Value) is the total revenue you can expect from a single customer over their entire relationship with your product.
Basic LTV = ARPU × Average Customer Lifetime
Churn-adjusted LTV = ARPU / Monthly Churn Rate
LTV:CAC Ratio = LTV / CAC (target: > 3)The Basic Customer LTV Formula
The simplest lifetime value of a customer formula looks like this:
LTV = ARPU × Average Customer Lifetime (in months)If your ARPU is €49/mo and your average customer stays 14 months, LTV = €49 × 14 = €686.
The problem? “Average customer lifetime” is a lagging metric. You don’t know it until customers have already churned. For a product that’s been live for 8 months, you literally cannot measure this. You’re guessing.
That’s why the churn-adjusted formula exists.
The Churn-Adjusted LTV Formula (Use This One)
This is the formula for LTV that actually works for subscription businesses:
LTV = ARPU / Monthly Churn RateWhy does this work? Monthly churn rate determines average customer lifetime mathematically. If 4% of customers leave each month, the average lifetime is 1 / 0.04 = 25 months. You don’t need to wait 25 months to know this — churn gives you the answer now.
This is the LTV formula SaaS founders should default to. It updates automatically as your churn rate changes, and it doesn’t require years of historical data.
One caveat: this assumes constant churn over time. In practice, churn is front-loaded (new customers churn faster). Cohort-based LTV handles this better, which I’ll cover below.
How to Calculate LTV Step by Step
Here’s the full customer lifetime value calculation with real numbers.
Step 1: Find your ARPU
Pull your MRR and divide by active customers. Say you have €3,920 MRR across 80 customers. ARPU = €3,920 / 80 = €49/mo.
If you’re tracking MRR correctly, this should be straightforward. If not, start there first.
Step 2: Calculate your monthly churn rate
Lost 3 customers out of 80 this month? Monthly churn = 3 / 80 = 3.75%.
Don’t mix up customer churn and revenue churn here. For this LTV calculation, use customer churn rate. Revenue churn tells a different story — one about which customers you’re losing.
Step 3: Divide
LTV = €49 / 0.0375 = €1,307
Step 4: Sanity-check against tenure
If your oldest customers are 10 months old and the formula says average lifetime is 26.7 months, you can’t verify it yet. That’s fine — the formula is forward-looking. But don’t bet the company on it until you have at least 12 months of churn data.
LTV Formula Variants
Not all LTV calculations are equal. Here are the three approaches and when each makes sense.
Customer LTV (the default)
Customer LTV = ARPU / Monthly Churn RateThis is what most founders mean when they say “LTV.” It’s the expected revenue from one average customer. Use it for CAC payback period calculations and general unit economics.
Revenue-Weighted LTV
Revenue LTV = Average Revenue per Account / Net Revenue Churn RateThis version uses net revenue churn instead of customer churn. If you have expansion revenue (upgrades, add-ons), net revenue churn might be lower — even negative. That means your LTV goes up because existing customers are spending more over time.
This is useful once you have tiered pricing and real upgrade behavior. For most early-stage founders, the basic customer LTV is enough.
Cohort-Based LTV
Instead of a single formula, cohort-based LTV tracks actual revenue from each signup month over time. January’s cohort of 20 customers generated €X in month 1, €Y in month 2, and so on.
This is the most accurate method because it captures the reality that churn isn’t constant. New customers churn faster. Month-6 survivors are stickier than month-1 customers. Cohort analysis gives you that nuance — read more about cohort analysis for SaaS founders.
NoNoiseMetrics calculates cohort-based LTV automatically from your Stripe data, so you don’t need to build spreadsheets for this.
LTV:CAC Ratio — The Number Investors Obsess Over
Once you have LTV, the next question is: how does it compare to what you spend acquiring customers?
LTV:CAC Ratio = LTV / CAC| Ratio | What It Means | Action |
|---|---|---|
| < 1:1 | You lose money on every customer | Stop spending. Fix churn or pricing first. |
| 1:1 — 3:1 | Breakeven or marginally profitable | Tighten acquisition costs, improve retention. |
| 3:1 — 5:1 | Healthy unit economics | Scale what’s working. |
| > 5:1 | Under-investing in growth | You could afford to spend more on acquisition. |
Worked example: ARPU = €49/mo. Monthly churn = 4%. LTV = €49 / 0.04 = €1,225. If your CAC is €250, LTV:CAC = 1,225 / 250 = 4.9:1. That’s strong — you’re recovering your acquisition cost nearly 5x over.
To understand what goes into that CAC number, check the full breakdown of the customer acquisition cost formula. And for context on whether your CAC is normal, see the average CAC benchmarks by SaaS segment.
A healthy ratio doesn’t mean much if it takes 24 months to recover the cost. Pair LTV:CAC with CAC payback period to get the full picture.
LTV Benchmarks by SaaS Segment
| Segment | Median LTV | Median LTV:CAC | Source |
|---|---|---|---|
| SMB self-serve (< €100 ARPU) | €800 — €2,000 | 3:1 — 5:1 | OpenView 2025 SaaS Benchmarks |
| Mid-market (€100 — €1,000 ARPU) | €5,000 — €25,000 | 3:1 — 4:1 | SaaS Capital (2024) |
| Enterprise (> €1,000 ARPU) | €50,000+ | 4:1 — 7:1 | Bessemer State of the Cloud (2024) |
For bootstrapped SaaS under €100k MRR, the SMB row is your benchmark. An LTV:CAC above 3:1 means your unit economics work. Below that, you’re either spending too much on acquisition or churning too fast.
Common LTV Mistakes
Forgetting to use gross margin. If your LTV is €1,225 but your gross margin is 75%, the real value to your business is €919. Some formulas bake this in (LTV = ARPU × Gross Margin / Churn). Use whichever version you want, just be consistent.
Using annual churn instead of monthly. Annual churn of 30% does not equal monthly churn of 2.5%. The math is different because of compounding. Monthly churn = 1 - (1 - annual churn)^(1/12). For 30% annual: monthly = ~2.9%.
Mixing revenue churn and customer churn. They answer different questions. Customer churn counts heads. Revenue churn counts euros. A business losing small customers but retaining large ones will have high customer churn but low revenue churn. Your LTV calculation changes dramatically depending on which you use.
Calculating LTV once and never updating. LTV is a moving target. Your churn rate changes, your ARPU changes, your mix of plans changes. Recalculate monthly at minimum.
FAQ
What is the LTV formula?
The most practical LTV formula for SaaS is ARPU divided by monthly churn rate. If your average revenue per user is €49/mo and your monthly churn rate is 4%, your LTV is €49 / 0.04 = €1,225. This churn-adjusted version is more reliable than multiplying ARPU by a guessed average lifetime because it uses data you can measure today.
How do I calculate LTV for SaaS?
Pull your monthly ARPU from your MRR divided by active customers, then divide it by your monthly customer churn rate. For a SaaS doing €4,900 MRR with 100 customers and 5% monthly churn, that’s €49 / 0.05 = €980 LTV per customer. Pair this with your CAC to get the LTV:CAC ratio — anything above 3:1 means your unit economics are healthy.
What is a good LTV:CAC ratio?
For bootstrapped SaaS, 3:1 to 5:1 is the sweet spot according to OpenView and Bessemer benchmarks (2024). Below 3:1 means you’re spending too much relative to what customers are worth. Above 5:1 suggests you could invest more aggressively in growth without hurting profitability.
Why does my LTV keep changing?
Because both inputs change constantly. Your ARPU shifts as customers upgrade, downgrade, or as your pricing mix evolves. Your churn rate fluctuates month to month based on product changes, seasonality, and cohort composition. This is normal — track the trend over 3—6 month windows rather than reacting to any single month.
Calculate your real LTV from Stripe data — NoNoiseMetrics shows LTV per cohort and per plan automatically. Try free up to €10k MRR ->
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