Customer lifetime value (LTV) is the total gross profit you earn from one customer over the whole time they stay with you. It tells you the ceiling on what you can afford to spend acquiring that customer and still make money. Track it in gross profit, not revenue, or you will overstate every account by your cost of serving it.
How to calculate LTV (formula and example)
Worked example: an account pays you $100 a month, you keep 80% of that as gross margin, and 2.5% of customers cancel each month. A 2.5% monthly churn means the average customer lasts 1 / 0.025 = 40 months. So LTV = $100 × 0.80 × 40 = $3,200 in gross profit per account. That is the same number the calculator above returns for those inputs.
Two levers move LTV more than anything else. Churn is the big one because it sits in the denominator: drop monthly churn from 2.5% to 2% and the average lifetime jumps from 40 to 50 months, lifting LTV by a quarter without a cent of price increase. The other is gross margin. A team running 60% margins is leaving a third of its LTV on the table versus one at 80%, which is why your cost to serve belongs in this calculation, not next to it.
Customer Lifetime Value (LTV) benchmarks by industry
There is no single "good" LTV in dollars, because pricing and segment swing it by an order of magnitude. The number that actually travels across companies is the ratio of LTV to what you paid to acquire the customer. The Optifai 2025-26 dataset of 939 B2B SaaS companies puts the median LTV:CAC ratio at 3.2:1, with 3:1 treated as the floor for a fundable business and 5:1 and up read as efficient. The bands below anchor each industry's LTV against First Page Sage's 2025 SMB-tier CAC figures (B2B SaaS around $700, Fintech SaaS $1,450, eCommerce SaaS $274) so the median column lands near 3:1, good near 4.5:1, and great near 7:1.
| Industry | Median | Good | Great |
|---|---|---|---|
| SaaS | $2,100 | $3,200 | $5,000 |
| Fintech | $4,400 | $6,500 | $10,000 |
| Dev Tools | $2,200 | $3,200 | $5,000 |
| AI/ML* (estimate) | $2,100 | $3,200 | $5,000 |
| E-commerce | $800 | $1,200 | $2,000 |
| Healthtech | $2,800 | $4,100 | $6,500 |
| Martech | $1,700 | $2,500 | $4,000 |
Read the table by your acquisition cost, not in a vacuum. Fintech LTVs look huge until you remember fintech SaaS pays roughly $1,450 to land an SMB account, per First Page Sage's CAC-by-industry report, so a $6,500 LTV there is the same 4.5:1 efficiency as a $3,200 LTV in vanilla B2B SaaS. E-commerce SaaS sells cheap to acquire and cheap to keep, so its dollar LTVs sit lowest while the ratio stays healthy. AI/ML has no clean primary CAC anchor yet, so its band is held near SaaS rather than guessed.
How to improve LTV
Because churn lives in the denominator, retention work pays back faster than almost anything else you can do to LTV. Cut the leak first, then widen the margin, then push price.
- Lower churn. Every point you shave off monthly churn stretches the average lifetime and compounds straight into LTV. Find the accounts that leave in months one to three and fix the onboarding gap that loses them.
- Grow accounts you already have. Expansion revenue from upgrades, seats, and usage raises ARPU on customers who cost you nothing more to acquire. Net negative churn is where LTV stops having a ceiling.
- Protect gross margin. Support, infrastructure, and payment fees all eat the margin term. A cheaper cost to serve lifts LTV on every existing account at once.
Related calculators
- LTV:CAC ratio: divide this LTV by acquisition cost to get the one number investors actually read.
- Churn rate: the input that swings LTV the most, since it sets the average customer lifetime.
- Customer acquisition cost: the cost side of the ratio, and the cap LTV has to clear.
- Revenue per user: the ARPU that feeds the gross-profit side of this formula.
Frequently asked questions
What is a good customer lifetime value (LTV)?
A good LTV is one that clears at least 3 times your customer acquisition cost, and ideally 4.5 to 5 times. Optifai's 2025-26 dataset of 939 B2B SaaS companies puts the median LTV:CAC ratio at 3.2:1. The dollar figure itself is not comparable across companies because pricing and segment move it so much, so judge LTV by the ratio, not the absolute number.
How is LTV calculated?
LTV = ARPU × gross margin % × (1 / monthly churn rate). The (1 / churn) term gives the average customer lifetime in months. For an account paying $100 a month at 80% margin and 2.5% monthly churn, the customer lasts 40 months and LTV is $100 × 0.80 × 40 = $3,200 in gross profit.
Should LTV use revenue or gross profit?
Use gross profit. Revenue-based LTV ignores what it costs to serve the customer, so it overstates the account by your hosting, support, and payment costs. Multiplying ARPU by gross margin keeps the number honest, which matters most when you compare it against acquisition cost.
Why does churn matter so much for LTV?
Churn sits in the denominator of the lifetime term, so small changes swing LTV hard. Dropping monthly churn from 2.5% to 2% stretches the average lifetime from 40 to 50 months and lifts LTV by 25% with no price change. That is why retention work usually beats price work for raising LTV.
