Lifetime value is the number that determines whether your business is fundamentally healthy or fundamentally broken. It sets the ceiling on what you can afford to spend to acquire a customer. It tells you whether your pricing is right, your retention is strong enough, and your gross margin is defensible. And it is almost universally miscalculated.
The most common simplification is treating churn as a flat, constant rate when the reality is that churn curves are shaped by cohort behaviour. New customers churn at higher rates than tenured ones. Some products see the opposite. The timing of churn has enormous implications for the actual revenue a customer generates, and a flat-churn model systematically overstates LTV by assuming you will retain customers at the same rate in year three as in month two.
This calculator handles both subscription and transactional business models with full-depth inputs: cohort-based churn curves, expansion revenue from upsell and seat growth, gross margin, and a present value discount rate that reflects the time value of money. The output is a month-by-month or year-by-year cohort revenue curve showing exactly when and how a typical customer generates value across their lifetime.
Methodology
For subscription models, the cohort model starts with a single customer at month zero and calculates the surviving fraction at each subsequent month by applying the churn rate multiplied by a curve modifier. The churn curve modifier adjusts the effective churn rate over time: front-loaded curves apply a higher churn multiplier in early months that decreases over time, back-loaded curves apply increasing churn over the customer lifetime, and bathtub curves apply high early churn, low mid-period churn, and elevated late-stage churn.
Expansion revenue is modelled as a monthly percentage increase in MRR per surviving customer, reflecting the compounding effect of seat additions, tier upgrades, and usage growth. Net revenue retention, which is MRR growth from expansion minus MRR loss from churn, is calculated implicitly within the model and surfaced in the insight section.
For transactional models, the cohort model applies an annual retention rate to determine the fraction of customers who make at least one additional purchase in each subsequent year, combined with a purchase frequency and average order value that may grow annually through an AOV growth rate.
Present value discounting applies a monthly discount factor derived from the annual discount rate to all future cash flows, reflecting the principle that money received in the future is worth less than money received today. The discounted LTV is the more financially rigorous number for investment decisions.
How to use this tool
- Select your business model: subscription and SaaS or transactional and e-commerce
- Enter your revenue, margin, churn, and expansion inputs for your model type
- Select a churn curve that best reflects your customer retention pattern
- Set your CAC to see the LTV to CAC ratio and payback period
- Review the cohort table to see how customer value accumulates period by period
- Use the sensitivity analysis to identify which lever has the greatest impact on LTV