Churn and LTV calculator

Why churn is the metric that compounds against you

Monthly churn looks harmless in isolation. Losing 3 percent of customers a month sounds like keeping 97 percent — until you compound it. Over a year, a 3 percent monthly churn means only 69 percent of a cohort survives; at 5 percent, barely more than half. This calculator does that compounding for you, using the classic geometric model: average customer lifetime equals one divided by the monthly churn rate.

Lifetime value follows directly. Take your monthly ARPU, keep only the gross-margin share of it (the revenue you actually get to keep after hosting, support and payment costs), and multiply by the average lifetime. A customer paying 49 dollars a month at 80 percent margin with 3 percent churn is worth roughly 1,300 dollars — not the 19,000 dollars a naive revenue-times-months-in-a-decade estimate would suggest.

Two practical implications. First, retention work is usually the cheapest growth channel you have: cutting churn from 4 to 2 percent doubles LTV, which doubles what you can afford to spend on acquisition. No landing page optimization comes close to that leverage. Second, LTV sets your ceiling on CAC — most SaaS investors look for an LTV to CAC ratio of at least 3.

One caveat: this model assumes churn is constant over a customer's life. In reality churn is usually front-loaded in the first months and flattens afterwards, so cohort analysis will refine this estimate. As a first-order planning number, though, one over churn remains the most useful formula in SaaS.

Related reading: churn rate, LTV and ARPU in the glossary.