How to Calculate Customer Lifetime Value (CLTV)

Customer lifetime value is a ubiquitous SaaS metrics. As a standalone metric, it doesn’t mean much. We must compare it our unit cost CAC to provide context on sales and marketing efficiency.,

In this post, I’ll explain how I calculate LTV. There are lovers and haters of this metric, but let’s at least put in the proper data and formula foundation.

In my free Excel download below, I walk you through basic customer lifetime value formula to the advanced and provide examples for each scenario.

This post was updated in May 2025.

What is Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV) is the revenue or margin that you receive from one customer over the lifetime of that customer.  The term “Customer Lifetime Value” is known by many words.   It’s also known as Lifetime Value (LTV) or CLTV.

We must have balance between customer lifetime value and the amount we spend to the acquire a customer. If our LTV is $10K and our CAC is $10K, we’ll be out of business fast. We’ve only covered CAC and no other expenses in our business.

My Excel Template Can Be Downloaded Below

How to Calculate Customer Lifetime Value

The formula below is what I use to calculate CLTV.  You are valuing the cash flows produced by one customer.

LTV is a point in time metric. We do not take the ACV of our entire customer base. We are only looking at our most recent customer wins. Why? Because our LTV profile changes over time.

LTV Inputs

Cohort ACV = if you acquire enough customers our users in a month, you can take the average ACV of that cohort as a proxy for what recently landed customers are paying you. If you only land 1 or 2 enterprise customers per month, you may want to calculate a rolling quarterly average.

Subscription GM% = it’s commonly accepted to gross margin adjust our LTV result. We multiply our cohort ACV by our most recent subscription gross margin percentage. I’ll either take our T3M or T6M subscription GM%.

1 – GRR = this equals our dollar churn. GRR is gross revenue retention. Some folks use logo churn in the denominator. I will use that if I can’t calculate a valid GRR. However, when using dollars in the numerator, I think it’s more appropriate to use a dollar-based churn number in the denominator.

Please note! This is the traditional subscription LTV formula. Check out this post on LTV with variable revenue if you have usage revenue.

What is a Good LTV?

Is $5K good? $50K? $100K?  In isolation it is hard to say. It depends on other factors in your business.  For some businesses, $5K could be a great lifetime value while $100K is really bad to others.

CLTV is most useful when compared to your customer acquisition costs (CAC).  This comparison manifests itself in the often-discussed CLTV to CAC ratio.

Customer Lifetime Value Example

CLTV is really meaningful when compared to your CAC (customer acquisition costs).  For example, if it costs $10K to acquire one new customer and your CLTV is $10K, you’ve got trouble.  Your CLTV to CAC ratio is equal to 1.  Meaning, you made no money from this customer.  $10K out the door to acquire the customer (expense) and $10K in the door (revenue or margin).

I suggest using a CLTV formula that incorporates customer margin.  Why?  If you use the customer’s lifetime value of revenue, you have not considered any of the costs to support that customer during their time with you.

The LTV to CAC rule of thumb has been 3x. However, Ray Rike’s data at Benchmarkit.ai suggest it’s around 3.5x on median performance SaaS companies.

I view CLTV/CAC as the return on your customer acquisition investment.

If CAC is new to you, CAC is simply the sales and marketing expense spent on acquiring new customers divided by the number of new customers acquired.  You can read more about customer acquisition costs (CAC) in my previous post.

LTV is Highly Sensitive

My downloadable template below has several versions of the LTV formula. Haters of LTV often blame the denominator (churn). If this is off by a few points or just plain wrong, it really swings your LTV.

Hence, it’s often difficult to pinpoint LTV for early-stage SaaS, because you have not been in business long enough. Again, you can estimate if you have great GRR data.

In my template, I also include sensitivity tables to understand how changes in two variables affect the customer lifetime value formula.

Why I Like CLTV/CAC Ratio

Simply put, you don’t want to spend more on customer acquisition than the lifetime margin of that customer.  Just like net margins, you want an increasing CLTV/CAC ratio.

If you offer a small price point product with a lot of users, LTV to CAC must be on your SaaS metrics dashboard.

LTV Nuances

This is a point in time calculation.  Meaning, next month your numbers will be different based on the performance of your business.  That’s where cohort analysis comes into play.  This month, your CLTV could be $20K and your CLTV/CAC ratio is 1.5, and next month it could better or worse.  Let’s hope for better.

I find LTV less applicable in high ACV businesses. Price points vary widely which swings your LTV wildly. I still calculate but the focus is not on this metric. I’m looking at CAC Payback and Cost of ARR.

But PLG and self-service SaaS businesses often live or die by the LTV to CAC measure. When you are spending thousands or millions of dollars on inbound acquisition, you MUST monitor LTV to CAC.

Action Items

Are you calculating LTV? There are many SaaS metrics out there, but CLTV and CAC are metrics that I would measure to understand the unit economics and the health of your SaaS business. 

Remember, you don’t want to spend more on acquiring a customer than the total return on that customer.  Please post your comments and feedback below.

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Ben Murray

I have worked in finance and accounting for 25+ years.  I’ve been a SaaS CFO for 9+ years and began my career in the FP&A function.  I hold an active Tennessee CPA license and earned my undergraduate degree from the University of Colorado at Boulder and MBA from the University of Iowa.  I offer coaching, fractional CFO services, and SaaS finance courses.