ToolNest

LTV Calculator

Customer lifetime value is the number that decides how much you can afford to spend winning a customer — and it is also the most quietly inflated metric in business. The version most calculators produce multiplies revenue by an average lifetime and calls the result LTV. But service costs, delivery, hosting and support all come out of that revenue before it can pay for acquisition, and a company that budgets CAC against revenue-LTV is spending money the customers never actually generate. This calculator shows both figures side by side: the revenue-based number most people quote, and the margin-based number that can genuinely fund growth, along with the percentage gap between them. Add your customer acquisition cost and it gives the LTV:CAC ratio against the classic 3:1 benchmark and the payback period in months — the two figures a CFO will ask for.

The short answer

LTV is gross margin × customer lifetime, not revenue × lifetime. A $500/month customer at 70% margin and 3% churn is worth $11,667 — while the revenue-based figure most calculators show is $16,667, overstated by 43%. Judge acquisition spending with the margin figure against a 3:1 LTV:CAC benchmark.

Revenue minus cost to deliver the service — not revenue minus nothing.

3% monthly churn means an average customer lifetime of 33 months.

Sales + marketing spend per customer won.

LTV on gross margin

$11,666.67

33.3-month average lifetime × $350.00 monthly gross profit.

The revenue-based figure
$16,666.67

What most calculators show — inflated 43% because service and delivery costs are ignored.

LTV:CAC ratio
19.44 : 1

At or above the 3:1 rule of thumb — acquisition is fundable.

CAC payback
1.7 months

Months of gross profit needed to win back the acquisition cost.

How to use LTV Calculator

  1. 1

    Enter monthly revenue per customer

    Average revenue per account per month — for annual contracts, divide by twelve. Use real averages, not list prices.

  2. 2

    Add gross margin and churn

    Gross margin is revenue minus the cost to deliver (hosting, support, COGS). Churn is the share of customers lost per month; the lifetime falls out of it as 100 ÷ churn.

  3. 3

    Add CAC for the ratio

    Customer acquisition cost is sales and marketing spend per customer won. The result names your LTV:CAC ratio, its health against 3:1, and payback months.

Why use this tool

  • Margin-adjusted LTV beside the revenue-based figure, with the inflation gap named
  • LTV:CAC ratio benchmarked against the 3:1 rule of thumb
  • CAC payback period in months, from monthly gross profit per customer
  • Lifetime derived from churn, so the assumption is explicit and testable
  • Private by design — unit economics never leave your browser

Frequently asked questions

What is the formula for customer lifetime value?
LTV = average revenue per period × gross margin % × average lifetime. With monthly churn, lifetime is 100 ÷ churn: 3% monthly churn means a 33-month average life. A $500/month customer at 70% margin is 350 × 33.3 = $11,667 of lifetime gross profit.
Why do most LTV calculators overstate the number?
They skip the margin. Multiplying revenue by lifetime counts dollars the customer spends, not dollars the business keeps — hosting, support and delivery costs evaporate first. At 70% margin the revenue-based figure is overstated by 43%, and a CAC budget built on it can exceed everything the customer actually contributes.
What is a good LTV:CAC ratio?
The working benchmark is 3:1 — three dollars of lifetime gross profit per dollar of acquisition cost. Below 1:1 you lose money on every customer before support even starts; between 1:1 and 3:1 you survive but growth consumes cash; far above 3:1, investors will ask why you are not spending more on acquisition.
What is CAC payback period?
The months of gross profit needed to repay the acquisition cost: CAC ÷ monthly gross profit per customer. A $1,200 CAC against $350 of monthly margin pays back in 3.4 months — excellent. Payback past 18-24 months means growth is financed by new money rather than the customers themselves.
Should lifetime come from churn or a fixed number of years?
From churn, wherever churn exists. A fixed "24-month lifetime" assumption hides the compounding: at 3% monthly churn the real average is 33 months; at 7% it is 14. The fixed-year habit is how subscription businesses kid themselves — the churn figure makes the assumption falsifiable.
Does this work for one-time-purchase businesses?
It adapts. Replace monthly revenue with average order value × purchase frequency per year, and churn with the share of customers who never buy again. The margin rule is unchanged: only gross profit can repay acquisition cost, whatever the purchase cadence.

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