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.