# Customer Lifetime Value (LTV) Calculator

> Calculate customer lifetime value to understand how much revenue each customer generates over their relationship with your business.

- **URL**: https://dodopayments.com/tools/ltv-calculator

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## What is Customer Lifetime Value (LTV)?

**Customer Lifetime Value (LTV)**, also called CLV or CLTV, is the total revenue a business can expect from a single customer account over the entire duration of their relationship. It is a forward-looking metric that helps you understand how much a customer is worth, which directly informs how much you can spend to acquire and retain them.

LTV is one of the most important SaaS metrics because it connects acquisition strategy, pricing decisions, and retention efforts into a single number.

## Why LTV Matters

- **Acquisition budget**: Your LTV sets the ceiling for Customer Acquisition Cost (CAC). A healthy SaaS business targets an LTV:CAC ratio of at least 3:1.
- **Pricing optimization**: If your LTV is low relative to peers, it may signal that your pricing is too low or your product lacks upsell potential.
- **Retention investment**: Understanding LTV helps justify spending on customer success, onboarding improvements, and churn reduction programs.
- **Investor metrics**: LTV:CAC ratio is one of the first metrics investors examine when evaluating SaaS businesses.

## How LTV is Calculated

The simplest LTV formula:

**LTV = ARPU x Customer Lifetime**

Where Customer Lifetime = 1 / Monthly Churn Rate.

A more precise version accounts for gross margin:

**LTV = (ARPU x Gross Margin %) / Monthly Churn Rate**

For businesses with expansion revenue:

**LTV = ARPU x Gross Margin % / (Churn Rate - Expansion Rate)**

## Input Metrics

- **Average Revenue Per User (ARPU)**: The average monthly revenue per customer across all pricing tiers.
- **Monthly Churn Rate**: The percentage of customers lost each month (use the Churn Rate Calculator to find this).
- **Gross Margin**: Your revenue minus cost of goods sold (hosting, support, infrastructure), expressed as a percentage.
- **Monthly Expansion Rate**: The percentage of additional revenue gained from existing customers through upgrades and add-ons.
- **Customer Acquisition Cost (CAC)**: The average cost to acquire one new customer, including marketing and sales expenses.

## Output Metrics

- **Customer Lifetime Value**: The total expected revenue from a customer over their entire relationship.
- **Customer Lifetime (Months)**: The average number of months a customer remains active.
- **LTV:CAC Ratio**: The relationship between customer value and acquisition cost. Above 3:1 is healthy; below 1:1 means you're losing money on each customer.
- **Payback Period (Months)**: How many months of revenue it takes to recover the cost of acquiring a customer.
- **Margin-Adjusted LTV**: LTV accounting for gross margin, giving a more accurate picture of actual profit per customer.