HOW TO USE OUR LTV CALCULATOR
Our Customer Lifetime Value (LTV) calculator allows you to see how much each individual user will contribute to your SaaS company’s bottom line.
WHAT IS THE EQUATION TO CALCULATE LTV?
There are a few different ways to calculate LTV. It really depends on your company and how specific you’re trying to be. The calculator above uses the following calculation.
LTV = ARPU X Avg number of months that a user will remain a customer
For example, if we had $100 in recurring monthly revenue (MRR) and we had a total of 10 paying customers, this would mean that our ARPU (Average Revenue Per User) is $10 (100/10). So far the calculation has been pretty easy.
However, many SaaS founders get confused when it comes to establishing the average number of months a user will remain a customer. How are they to figure this out? What if they haven’t collected enough data yet to know how many months a user will remain a customer? Luckily, the above equation takes this into consideration. We can easily solve this issue by simply inverting our churn rate and diving it by 1. For example, if our churn rate is 10%, we can simply calculate 1/ (Churn x 0.01) or in this case 1/.10. This tells us that if we have a 10% churn rate, an average user will remain a customer for approximately 10 months.
Experiment with the LTV calculator above to see how big of an impact churn has on the potential value customers can bring into your company during their subscription lifetime.
Similarly, you’ll need to be able to define your LTV before you can calculate your LTV to CAC ratio. This is a ratio that allows you to see how financially effective your new customer acquisition strategies are.
Hi There! 👋
Thanks for using our real-time SaaS Customer Lifetime Value calculator!
This LTV calculator will allow you to see what the total value of a new customer is for your SaaS company.
It’s important to know your LTV because it’s important your Customer Acquisition Cost (CAC) is lower than your LTV in order for you to realize a profit.
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