WiseTech, the logistics software company I wrote about in the book, kept annual churn at about 1 percent for nine years. A client who stays for decades, on a product with a gross margin in the 90s, is worth an enormous amount of money.
Most of us don't run WiseTech. But every subscription business needs to know what one customer is worth. If you don't know that, how do you know what you can afford to spend to win one?
How to use the LTV calculator
- Enter your average revenue per customer per month (ARPA), excluding GST. If customers pay annually, divide by 12.
- Enter your gross margin: the share of revenue left after the direct costs of delivering the service.
- Enter your monthly churn rate, or switch to average lifetime if that's what you know.
- Open "make it realistic" to add expansion, a discount rate and a lifetime cap. The calculator opens with these switched on, because the simple formula flatters most businesses.
How the maths works
Average lifetime (months) = 1 ÷ Monthly churn LTV = (ARPA × Gross margin) ÷ Monthly churn Revenue LTV = ARPA ÷ Monthly churn
The realistic LTV adds up each month's expected gross profit. Each month, the customer is still there with probability (1 − churn), their spend grows by the expansion rate, and the dollars are discounted back to today:
r = (1 − churn) × (1 + expansion) ÷ (1 + monthly discount rate) Realistic LTV = ARPA × Gross margin × (1 − rᴺ) ÷ (1 − r), for a cap of N months
The monthly discount rate is (1 + annual rate)^(1/12) − 1. With no expansion, no discount and no cap, the realistic LTV equals the simple one.
A worked example
The calculator opens with a customer paying $80 a month at a 75% gross margin, so you keep $60 a month. Monthly churn is 3%, so the average customer stays about 33 months.
- Simple LTV: $60 ÷ 0.03 = $2,000
- Revenue LTV: $80 ÷ 0.03 = $2,667 (the number people quote when they forget costs)
- Realistic LTV, with 0.5% monthly expansion, a 10% discount rate and a five-year cap: about $1,580
That gap matters. If you planned your marketing budget on $2,667, you'd overspend by two-thirds.
How to read your result
LTV on its own doesn't tell you much. It's what you compare it with that counts. The usual test is the LTV:CAC ratio: our LTV:CAC guide treats 3:1 as the long-standing floor and reports a 2026 Aleph and Benchmarkit median of 4.1x across 342 SaaS companies. That's why the calculator shows LTV ÷ 3 as the most you should spend to win a customer.
The fastest way to grow LTV is usually churn, not price. Cutting churn from 3% to 2% lifts simple LTV by half. The calculator shows you that "cut churn by a third" figure for your own numbers.
Two warnings. First, gross margin means after the direct cost of serving the customer, including payment fees, hosting or AI compute, and delivery staff. See gross margin for subscription businesses. Second, at very low churn the formula runs towards infinity. Cap it at three to five years for planning.
What to do next
- Read the full guide to customer lifetime value, including cohort LTV.
- Compare LTV with acquisition cost in the LTV:CAC and Payback Calculator.
- Get an accurate churn rate first with the Churn Rate Calculator.
- Grow LTV from the top with expansion revenue, or from the bottom by working on how to reduce churn.
Frequently asked questions
Should LTV use revenue or gross profit?
Gross profit. A customer paying $100 a month who costs you $60 a month to serve is worth $40 a month to you, not $100. Revenue LTV is useful for reporting top-line value, but it overstates what you can afford to spend on acquisition. When you compare LTV with CAC, always use the gross-margin version, or the ratio will look far healthier than it is.
What discount rate should I use for LTV?
Use your cost of capital: roughly the return you or your investors expect for the risk. Many small businesses use somewhere between 8% and 15% a year. The higher the rate, the less future months are worth today. The point isn't precision. It's to stop a customer who stays ten years looking ten times as valuable as one who stays one year.
How do I calculate LTV with annual plans?
Convert everything to monthly. Divide the annual price by 12 for ARPA. For churn, annual-plan customers can only leave at renewal, so take your annual renewal loss rate and convert it: monthly churn = 1 − (1 − annual churn)^(1/12). Or switch the calculator to average lifetime and enter how many months annual customers typically stay.
Should LTV include expansion revenue?
It can, but be conservative. If customers upgrade over time, including expansion gives a higher LTV than logo churn alone. If expansion outweighs churn, the simple formula breaks because value grows forever. That's why the realistic figure here uses a discount rate and a lifetime cap, so the answer stays finite and defensible.
What is a good LTV?
There's no good LTV in isolation. A $500 LTV is excellent if customers cost $50 to win and terrible if they cost $400. Judge it against your customer acquisition cost: 3:1 is the long-standing minimum and 4:1 to 5:1 is healthy. Also check how long it takes to earn back acquisition cost, because a high LTV that takes four years to arrive can still starve you of cash.
Built on The Subscription Playbook
This tool turns frameworks from Robert Coorey's book into something you can use in minutes. Robert is the author of The Subscription Playbook and a Director at BPAG Accountants. More about Robert.