The version investors actually compute
Lifetime value is the gross profit a customer produces before they leave. Two mistakes make most founder-reported LTV numbers roughly double what they should be:
- Using revenue instead of gross profit. If your margin is 80%, only 80 cents of each dollar is yours.
- Using an optimistic churn figure. Lifetime is
1 ÷ monthly churn. At 3% monthly churn the average customer stays 33 months, not "about five years".
This calculator uses LTV = (ARPA × gross margin) ÷ monthly churn and reports the implied annual churn alongside it, because the monthly figure tends to feel smaller than it is. Three percent monthly compounds to roughly 31% a year.
Why churn is usually the lever
When the ratio comes in below 3:1, founders tend to reach for CAC first. Churn is almost always the cheaper lever. Halving churn doubles LTV and doubles the ratio; halving CAC requires rebuilding an acquisition channel. If your ratio is thin, look at onboarding and activation before you look at ad spend.
Questions
Why gross profit and not revenue?
Because revenue you spend on serving the customer was never yours. An investor will recompute your LTV on gross profit, so it is better to run the honest number yourself first.
My churn is under 1% — is the number reliable?
Be careful. Very low churn on a small, young customer base produces enormous LTV figures that have never been observed. If most of your customers have been with you under a year, treat any lifetime estimate beyond about 36 months as speculative.
Should I use logo churn or revenue churn?
This tool uses customer (logo) churn. If you have meaningful expansion revenue, net revenue retention is a better lens and will show a materially healthier picture.
Is 3:1 a real rule?
It is a convention rather than a law, but it is the convention investors use. Below 3:1 the gross profit does not comfortably cover acquisition plus the overhead of running the business.