Calculate the true lifetime value of your customers. Enter average monthly revenue, gross margin and churn rate to see LTV, LTV:CAC health check and the dramatic revenue impact of even small churn reductions.
| Monthly Churn | Avg Lifetime | LTV | LTV:CAC | vs Current |
|---|
LTV is not just a metric — it sets the ceiling on how much you can profitably spend to acquire a customer. If LTV is £800, you can spend up to £266 on acquisition (3:1 ratio) and remain within healthy unit economics. If LTV drops to £400 through higher churn, your maximum CAC halves. Understanding LTV — and what drives it — is the foundation of scalable marketing.
At 4% monthly churn, average customer lifetime = 25 months, LTV = 25 × monthly contribution. At 2% churn: 50 months, LTV = 50 × monthly contribution. Halving churn doubles LTV. A business with £120 ARPU, 65% margin and 4% churn has LTV ≈ £1,950. At 2% churn: £3,900. This doubled LTV either doubles permissible CAC (allowing more aggressive acquisition) or doubles net contribution without any increase in spend.
Four ways to increase LTV: (1) Reduce churn through better onboarding and customer success; (2) Increase ARPU through upselling, cross-selling or pricing increases; (3) Improve gross margin through cost reduction; (4) Extend the relationship through retention programs and loyalty incentives. Churn reduction is typically the highest-ROI lever because it compounds across the entire customer base.
Simple LTV assumes customers generate equal value each month indefinitely. Discounted LTV (DLTV) applies a cost-of-capital adjustment — future cash flows are worth less than today's. At a 10% annual discount rate, a customer who generates £78/month for 25 months has a simple LTV of £1,950 but discounted LTV of approximately £1,650. DLTV is more accurate for long-lifetime businesses.
CLV (or LTV) is the total net profit generated by a customer throughout their relationship with your business. Simple formula: LTV = (Average Monthly Revenue per Customer × Gross Margin %) ÷ Monthly Churn Rate. Example: £120/month, 65% margin, 4% churn: monthly contribution = £78, LTV = £78 ÷ 0.04 = £1,950. This sets the maximum rational CAC at £650 (3:1 LTV:CAC).
Main levers: (1) Reduce churn — every 1% reduction in monthly churn dramatically increases LTV (see churn table above); (2) Increase ARPU through upsells, cross-sells or price increases; (3) Improve gross margin by reducing COGS; (4) Extend initial contract lengths — annual vs monthly reduces churn risk; (5) Create switching costs through data lock-in, integrations and network effects.
The standard SaaS/subscription benchmark: 3:1 minimum (each customer returns 3× their acquisition cost). Below 1:1: fundamentally broken. 1:1 to 3:1: marginal. 3:1 to 5:1: healthy. Above 5:1: excellent — you can likely afford to invest more in growth. Above 8:1: consider whether you are underinvesting in acquisition. LTV:CAC should be considered alongside payback period — high ratio with 24+ month payback can create cash flow strain.