Which LTV formula should I use?

Gross Margin Adjusted LTV is the most widely accepted standard. It reflects actual profit per customer rather than raw revenue. Use Simple LTV only for quick back-of-envelope estimates. Use Discounted LTV when presenting to investors or building financial models. Use Contract-Based when your customers sign fixed-term agreements.

What is a healthy average customer lifespan for SaaS?

24 to 36 months (2% to 3% monthly churn) is typical for early-stage SaaS. Established enterprise products often see 60 or more months (under 1.7% monthly churn). Consumer SaaS tends to have shorter lifespans, often 6 to 12 months, due to higher churn. Use this metric consistently over time to track improvement rather than optimizing for a single period's snapshot.

Why does the discounted LTV differ from gross margin LTV?

Discounted LTV accounts for the time value of money. A dollar received 24 months from now is worth less than a dollar received today. The higher your discount rate, the larger the gap between the two methods. At a 0% discount rate, both methods produce the same number.

What monthly churn rate should I target?

Below 2% monthly (under 22% annual) is the benchmark for healthy SaaS. Below 1% monthly (under 12% annual) is considered excellent and is typical of enterprise products with strong switching costs. Above 5% monthly signals retention problems that need immediate attention.

How does expansion revenue affect LTV?

This calculator uses a fixed ARPU. If your customers upgrade, add seats, or buy add-ons over time, your effective ARPU increases with tenure. To account for expansion, use your average ARPU across your full customer base rather than your entry-tier price. Run the calculation monthly to track trend direction rather than relying on a single data point.

What gross margin should I use?

SaaS gross margin typically ranges from 65% to 85%. Include hosting, infrastructure, customer support, and any third-party API costs that scale with users. Do not include sales, marketing, or R&D costs. If you are unsure, start with 70% as a conservative estimate.

SaaS LTV Calculator

Run simple, gross-margin, discounted, and contract LTV side by side from the same ARPU and churn, then scan gross-margin LTV across fixed churn steps.

100% client-side. Inputs stay in your browser (localStorage key ons-saas-ltv-inputs).

Compare four LTV definitions from the same ARPU and churn, gross-margin LTV is marked as the usual headline for investor-style conversations.

Country / region

Inputs

Average revenue per user (ARPU) / monthMonthly churn rate (%)Gross margin (%)Average contract length (months)Annual discount rate (%)

Used for discounted LTV (e.g. WACC). 0% matches gross-margin LTV at the same churn.

At 3% monthly churn, your average customer stays about 33.3 months (~2.8 years).

LTV by method

Simple

ARPU ÷ monthly churn

$1,633

Recommended

Gross margin

Profit-weighted recurring LTV

$1,143

Discounted

Gross margin ÷ (churn + monthly discount)

$903

Contract

ARPU × contract months × margin

$412

Visual comparison

Same four methods as the cards, useful when one definition is an outlier.

Gross-margin LTV vs churn

ARPU and gross margin fixed at your inputs; only monthly churn moves.

Monthly churn	Gross-margin LTV
1%	$3,430
2%	$1,715
3%	$1,143
5%	$686
10%	$343

How this tool works

Customer lifetime value measures the total profit one customer generates before they cancel. The calculator runs four formulas at once because different contexts call for different methods. Simple LTV divides ARPU by monthly churn and gives the raw revenue number. Gross Margin LTV multiplies that by your gross margin percentage and is the standard used in most SaaS benchmarking (Bessemer, OpenView, ChartMogul). Discounted LTV adds a time-value adjustment: monthly discount rate = (1 + annual rate) ^ (1/12) - 1, then LTV = (ARPU x margin) / (monthly churn + monthly discount rate). Contract-Based LTV uses a fixed contract term instead of churn-derived lifespan and works for enterprise SaaS with negotiated agreements. Average lifespan = 1 / monthly churn rate. At 3% monthly churn, average lifespan is 33.3 months. The sensitivity table shows how Gross Margin LTV shifts at 1%, 2%, 3%, 5%, and 10% churn to reveal the outsized impact of small churn reductions.

Worked example

B2B SaaS. ARPU $49/month. Monthly churn 3%. Gross margin 70%. Contract length 12 months. Annual discount rate 10%. Simple LTV: $49 / 0.03 = $1,633. Gross Margin LTV: $1,633 x 0.70 = $1,143. Discounted LTV: monthly discount 0.797%, LTV = $34.30 / 0.03797 = $903. Contract-Based LTV: $49 x 12 x 0.70 = $412. Customer lifespan: 33.3 months. Dropping churn from 3% to 2% increases Gross Margin LTV from $1,143 to $1,715, a 50% increase. This is why churn reduction is the single highest-leverage metric in SaaS unit economics.

Frequently asked questions

Which LTV formula should I use?
Gross Margin Adjusted LTV is the most widely accepted standard. It reflects actual profit per customer rather than raw revenue. Use Simple LTV only for quick back-of-envelope estimates. Use Discounted LTV when presenting to investors or building financial models. Use Contract-Based when your customers sign fixed-term agreements.
What is a healthy average customer lifespan for SaaS?
24 to 36 months (2% to 3% monthly churn) is typical for early-stage SaaS. Established enterprise products often see 60 or more months (under 1.7% monthly churn). Consumer SaaS tends to have shorter lifespans, often 6 to 12 months, due to higher churn. Use this metric consistently over time to track improvement rather than optimizing for a single period's snapshot.
Why does the discounted LTV differ from gross margin LTV?
Discounted LTV accounts for the time value of money. A dollar received 24 months from now is worth less than a dollar received today. The higher your discount rate, the larger the gap between the two methods. At a 0% discount rate, both methods produce the same number.
What monthly churn rate should I target?
Below 2% monthly (under 22% annual) is the benchmark for healthy SaaS. Below 1% monthly (under 12% annual) is considered excellent and is typical of enterprise products with strong switching costs. Above 5% monthly signals retention problems that need immediate attention.
How does expansion revenue affect LTV?
This calculator uses a fixed ARPU. If your customers upgrade, add seats, or buy add-ons over time, your effective ARPU increases with tenure. To account for expansion, use your average ARPU across your full customer base rather than your entry-tier price. Run the calculation monthly to track trend direction rather than relying on a single data point.
What gross margin should I use?
SaaS gross margin typically ranges from 65% to 85%. Include hosting, infrastructure, customer support, and any third-party API costs that scale with users. Do not include sales, marketing, or R&D costs. If you are unsure, start with 70% as a conservative estimate.